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Exclusion as a Core Competition Concern
Jonathan B. Baker
American University Washington College of Law, [email protected]
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EXCLUSION AS A CORE COMPETITION CONCERN
JONATHAN B. BAKER*
Exclusionary conduct1 is commonly relegated to the periphery in contemporary antitrust discourse, while price fixing, market division, and other forms
of collusion are placed at the core of competition policy. When the term “hard
core” is applied to an antitrust violation,2 or the “supreme evil” of antitrust is
identified,3 the reference is invariably to cartels.4 At the same time, antitrust is
“more cautious” in condemning exclusion than collusion.5
* Professor of Law, American University Washington College of Law. This paper revises and
extends keynote remarks delivered to the Twenty-second Annual Workshop of the Competition
Law and Policy Institute of New Zealand (CLPINZ). The author is especially grateful to Andy
Gavil and also indebted to Svend Albaek, Rick Brunell, Peter Carstensen, Pat DeGraba, Aaron
Edlin, Harry First, Scott Hemphill, Heather Hughes, Al Klevorick, Prasad Krishnamurthy, Bob
Lande, James May, Doug Melamed, Doug Richards, Steve Salop, David Snyder, Josh Soven,
Peter Taylor, John Woodbury, Josh Wright, an anonymous referee, and participants in the faculty
business law workshop at American University, the law and economics workshop at Berkeley
Law School, the CLPINZ workshop, and the Loyola Antitrust Colloquium.
1 The terms “exclusion” and “foreclosure,” which will be used interchangeably, encompass
both the complete foreclosure of rivals or potential entrants and conduct that disadvantages rivals
without necessarily inducing them to exit. Exclusion is anticompetitive if the excluding firms use
it to obtain or maintain market power, as by raising price or keeping a supracompetitive price
from declining.
2 E.g., ORGANIZATION FOR ECONOMIC CO-OPERATION AND DEVELOPMENT, HARD CORE CARTELS 58 (2000), available at http://www.oecd.org/dataoecd/39/63/2752129.pdf (“[H]ard core cartels are the most egregious violations of competition law . . . .”). “Hard core cartels” are collusive
arrangements lacking an efficiency justification. See id. at 6. In Europe, the term “hard core” is
also applied to a class of prohibited vertical restraints. See Commission Regulation (EU) No.
303/2010, 2010 O.J. (L 102) 1, 4–5 (stating block exemption for vertical agreements not applied
to supply or distribution agreements that contain a “hardcore” restriction such as vertical price
fixing or territorial or customer sales restrictions).
3 Verizon Commc’ns Inc. v. Law Offices of Curtis V. Trinko, LLP, 540 U.S. 398, 408 (2004)
(noting that collusion is the “supreme evil” of antitrust).
4 Accord U.S. DEP’T OF JUSTICE, ANTITRUST ENFORCEMENT AND THE CONSUMER 3, available
at http://www.justice.gov/atr/public/div_stats/antitrust-enfor-consumer.pdf (“The worst antitrust
offenses are cartel violations[.]”).
5 HERBERT HOVENKAMP, THE ANTITRUST ENTERPRISE 24 (2005); see Leegin Creative
Leather Prods., Inc. v. PSKS, Inc., 551 U.S. 877, 888 (2007) (“Our recent cases formulate antitrust principles in accordance with the appreciated differences in economic effect between vertical and horizontal agreements[.]”); Copperweld Corp. v. Independence Tube Corp., 467 U.S.
527
78 Antitrust Law Journal No. 3 (2013). Copyright 2013 American Bar Association.
Reproduced by permission. All rights reserved. This information or any portion thereof may
not be copied or disseminated in any form or by any means or downloaded or stored in an
electronic database or retrieval system without the express written consent of the American
Bar Association.
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Antitrust commentators associated with the Chicago School6 have long expressed deep skepticism about exclusion as an antitrust theory, particularly as
applied to dominant firm conduct.7 Mainstream and progressive commentators
also call collusion the central antitrust problem,8 although post-Chicago commentators tend more than most to take exclusionary conduct seriously.9 Moreover, the antitrust enforcement agencies routinely emphasize collusion over
exclusion in articulating their enforcement priorities.10 These rhetorical dis752, 768 (1984) (“Concerted activity subject to § 1 is judged more sternly than unilateral activity
under § 2.”).
6 The three major eras of antitrust interpretation—classical (1890 to the 1940s), structural
(1940s through the 1970s), and Chicago School (since the late 1970s)—and emerging post-Chicago approaches are surveyed in Jonathan B. Baker, A Preface to Post-Chicago Antitrust, in
POST-CHICAGO DEVELOPMENTS IN ANTITRUST LAW 60, 60–67 (Antonio Cucinotta, Roger Van
den Bergh & Roberto Pardolesi eds., 2002).
7 In Judge Robert Bork’s view, in his influential book The Antitrust Paradox, courts should
almost never credit the possibility that a firm could exclude rivals by refusing to deal with suppliers or distributors also or otherwise force rivals to bear higher distribution costs. ROBERT H.
BORK, THE ANTITRUST PARADOX 156, 346 (1978). However, Bork did identify one case in which
he believed that unilateral conduct by a dominant firm had properly been condemned as exclusionary. See id. at 344–46 (citing Lorain Journal Co. v. United States, 342 U.S. 143 (1951)).
Judge Richard Posner has similarly described anticompetitive exclusion as “rare,” RICHARD POSNER, ANTITRUST LAW 194 (2d ed. 2001), though he is not as skeptical about exclusion as other
Chicago School commentators, see id. at 194 & n. 2.
8 For example, Professor Herbert Hovenkamp, author of the leading antitrust treatise, recently
described price fixing as “kind of the first-degree murder of antitrust violations,” Thomas Catan,
Critics of E-Books Lawsuit Miss the Mark, Experts Say, WALL ST. J., Apr. 23, 2012, at B1, and
Professor Robert Lande, a Director of the pro-enforcement American Antitrust Institute, recently
called collusion among rivals “the essence of the most evil thing we have in antitrust,” Sara
Forden, U.S. Sues Apple for eBook Pricing as Three Firms Settle, BLOOMBERG (Apr. 17, 2012),
http://www.bloomberg.com/news/2012-04-17/u-s-sues-apple-for-ebook-pricing-as-three-firmssettle.html.
9 Professor Steven Salop, a leading post-Chicago antitrust commentator, has long emphasized
the importance of antitrust’s concern with exclusion. See, e.g., Steven C. Salop, Economic Analysis of Exclusionary Vertical Conduct: Where Chicago Has Overshot the Mark, in HOW THE
CHICAGO SCHOOL OVERSHOT THE MARK: THE EFFECT OF CONSERVATIVE ECONOMIC ANALYSIS
ON U.S. ANTITRUST 141, 141–44 (Robert Pitofsky ed., 2008); Thomas G. Krattenmaker &
Steven C. Salop, Anticompetitive Exclusion: Raising Rivals’ Costs to Achieve Power Over Price,
96 YALE L.J. 209, 213 (1986). See generally Jonathan B. Baker, Professor of Law, Am. Univ.
Wash. Coll. of Law, Remarks at the Presentation of the American Antitrust Institute Antitrust
Achievement Award to Steven C. Salop (June 24, 2010), http://www.antitrustinstitute.org/
~antitrust/sites/default/files/Baker%20Salop%20Comments_062820101005.pdf. Exclusionary
conduct has been the source of the most significant divide between Chicago School and postChicago commentators.
10 A recent Assistant Attorney General for Antitrust identified cartel enforcement as his
agency’s “top priority,” well ahead of “single firm conduct” (which often involves exclusion by a
dominant firm). See Thomas O. Barnett, Deputy Assistant Att’y Gen. for Antitrust, U.S. Dep’t of
Justice, Antitrust Enforcement Priorities: A Year in Review (Nov. 19, 2004), available at http://
www.justice.gov/atr/public/speeches/206455.htm. Similarly, it is “uncontroversial,” according to
a former Chairman of the FTC, that non-merger antitrust enforcement should focus on “horizontal activities” (which are often collusive). Timothy J. Muris, Chairman, Fed. Trade Comm’n,
Antitrust Enforcement at the Federal Trade Commission: In a Word—Continuity (Aug. 7, 2001),
http://www.ftc.gov/speeches/muris/murisaba.shtm. By “horizontal activities,” Muris intended to
refer primarily to collusive conduct; he would have used the term “single firm” to discuss most
2013]
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tinctions may be framed in terms of traditional doctrinal distinctions between
concerted and unilateral conduct, and between horizontal and vertical conduct, but, as Part I of this article explains, they are better understood in terms
of the related but not identical economic distinction between collusive and
exclusionary conduct.
Exclusion is routinely described as having a lesser priority than collusion
even though exclusion is well established as a serious competitive problem in
both antitrust law and industrial organization economics. Part II of this article
surveys the breadth of practices that courts have considered exclusionary,
shows that exclusion has not been downplayed in court decisions, and explains that the emerging doctrinal rules governing exclusion and collusion
place the two types of competitive problems on similar footings. In formal
structure, antitrust rules are not tougher on collusion. Rather, the rules are
tough on conduct with no plausible efficiency justification, i.e., what is commonly termed “naked” collusion or what will be referred to here as “plain”
exclusion. Part III demonstrates that collusion and exclusion are also closely
related as a matter of economics—so much so as to make the economic reasons for concern about anticompetitive collusion equally reasons for concern
about anticompetitive exclusion. If anything, as this Part further explains, anticompetitive exclusion may be the more important problem because of the
particular threat exclusion poses to economic growth.
Notwithstanding the broad parallels in the economic analysis of exclusion
and collusion, the two types of anticompetitive conduct arise through different
economic mechanisms. Just as colluding firms must find a way to solve “cartel problems” (reaching consensus on terms of coordination, deterring cheating on those terms, and preventing new competition), excluding firms must
find a way to solve “exclusion problems” (identifying an exclusionary
method, excluding sufficient rivals to harm competition, and ensuring that the
exclusionary conduct is profitable for each excluding firm). Despite these differences, as Part IV demonstrates, the doctrinal rules identified in Part II truncate the comprehensive reasonableness analysis of exclusionary conduct in
ways analogous to the structured reasonableness rules governing collusive
conduct by making it unnecessary to show how or whether defendants solve
all the relevant exclusion problems or cartel problems. Again, therefore, the
exclusionary behavior. E-mail from Timothy J. Muris, Former Chairman, Fed. Trade Comm’n,
to Jonathan Baker, Professor of Law, Am. Univ. Wash. Coll. of Law (Dec. 10, 2011, 7:37 PM
EST) (on file with author). Even enforcers “not so aligned with the Chicago School may approach exclusionary claims more cautiously than collusion claims.” John Woodbury, Paper
Trail: Working Papers and Recent Scholarship, ANTITRUST SOURCE, Apr. 2012, http://www.
americanbar.org/content/dam/aba/publishing/antitrust_source/apr12_papertrail_4_26f.authcheck
dam.pdf (referencing Justice Department materials from the current administration).
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formal structure of antitrust rules does not downplay anticompetitive
exclusion.
The rhetorical consensus is so powerful that claims of priority for collusion
over exclusion are typically stated without explicit justification. They nevertheless appear to be grounded primarily in two commonly accepted and
closely related suppositions, evaluated critically in Part V along with other
purported justifications for downplaying exclusion. The first supposition is
that it is more difficult for courts and enforcers to identify anticompetitive
exclusionary conduct than to identify harmful collusive conduct, because conduct that looks exclusionary commonly also promotes competition by enhancing efficiency.11 The second is that exclusionary conduct often benefits
consumers in the short run, and that as a result, overly aggressive enforcement
against exclusionary conduct risks chilling such procompetitive practices as
price cutting and new product introductions. Together, these premises, if accepted, would imply that mistakes in enforcement and adjudication against
anticompetitive exclusion pose greater threats than mistakes in enforcement
and adjudication against anticompetitive collusion, and, consequently, would
justify downplaying exclusionary conduct in antitrust enforcement.
Justice Scalia’s opinion for the Supreme Court in Verizon Communications
Inc. v. Law Offices of Curtis V. Trinko also suggests that mistakes in enforcement and adjudication are more frequent and more troublesome in exclusion
cases, but grounds that view in different and more controversial arguments.12
The opinion’s sweeping rhetoric—all dicta13 —minimizes the competitive
11 See, e.g., U.S. DEP’T OF JUSTICE, COMPETITION AND MONOPOLY: SINGLE-FIRM CONDUCT
UNDER SECTION 2 OF THE SHERMAN ACT 12–13 (2008), available at http://www.justice.gov/atr/
public/reports/236681.pdf, withdrawn, Press Release, U.S. Dep’t of Justice, Justice Department
Withdraws Report on Antitrust Monopoly Law (May 11, 2009), http://www.usdoj.gov/atr/public/
press_releases/2009/245710.pdf [hereinafter DOJ SECTION 2 REPORT (WITHDRAWN)]. These
themes were also emphasized by speakers at a conference discussion of a draft of this article,
including among those sympathetic to a robust antitrust concern with exclusionary conduct.
12 See generally Verizon Commc’ns Inc. v. Law Offices of Curtis V. Trinko, LLP, 540 U.S.
398 (2004). The central claim in the case involved exclusionary conduct: a class of local telephone service customers alleged that Verizon, an incumbent local exchange carrier, had protected its monopoly prices from erosion by denying interconnection services to entrants seeking
to offer competing local telephone service. Id. at 402–03 (noting that Verizon was obligated to
provide new entrants with interconnection services under the Telecommunications Act of 1996).
The Court held that Verizon’s unilateral refusal to assist its rivals did not state a claim under the
Sherman Act. Id. at 415–16.
13 Trinko is best read as precluding monopolization liability in a setting in which a separate
statutory scheme provides for extensive regulation aimed at promoting competition. (The statute
incorporated specific mechanisms for promoting competition by requiring incumbent monopolists to deal with entrants.) See id. at 402–03. If the regulatory scheme is sufficiently extensive
and effective, Trinko holds, antitrust enforcement may be displaced. See id. at 413 (“[T]he [regulatory] regime was an effective steward of the antitrust function.”); see also Nobody v. Clear
Channel Commc’ns, Inc., 311 F. Supp. 2d 1048, 1112–14 (D. Colo. 2004) (limiting Trinko to
regulated industry settings). But see John Doe 1 v. Abbott Labs., 571 F.3d 930, 934 (9th Cir.
2013]
EXCLUSION
AS A
CORE COMPETITION CONCERN
531
concern arising from a monopolist’s unilateral exclusionary acts by implicitly
describing the consequences of judicial mistakes from Sherman Act Section 2
enforcement in asymmetric terms.14 The Trinko opinion can be understood to
claim that false negatives (false acquittals) are not troublesome because monopolies are temporary, hence self-correcting;15 that false positives (false convictions) are troublesome because monopolies foster economic growth;16 and
that courts cannot practically craft relief to avoid ongoing judicial supervision,
at least with respect to the violation alleged in the case.17 Consistent with its
skeptical view of antitrust enforcement against exclusionary conduct, Trinko
declares that collusion is the “supreme evil” of antitrust18 and rhetorically cabins-in an earlier pro-plaintiff monopolization decision, Aspen Skiing Co. v.
Aspen Highlands Skiing Corp.,19 by describing it as “at or near the outer
boundary of § 2 liability.”20
Whether the claimed policy justifications for downplaying exclusion are
grounded in common ideas about the difficulty distinguishing procompetitive
conduct from anticompetitive exclusion or in the more controversial arguments made in Trinko, they do not stand up to analysis. The antitrust enforcement agencies do challenge collusion more frequently than exclusion. This
observation could be explained through a theory sympathetic to assigning exclusion a lower priority than collusion, as consistent with the dual suppositions that it is more difficult to rule out efficiencies and avoid erroneous
findings of liability in exclusionary conduct cases than in collusive conduct
cases. But, as Part V explains, the relatively low frequency of enforcement
against anticompetitive exclusion instead probably reflects an enforcement
2009) (considering Trinko outside of the regulated industries context). More recently, the Court
again displaced an antitrust court in favor of awarding exclusive jurisdiction over competition
enforcement to an industry regulator. Credit Suisse Sec. (USA) LLC v. Billing, 551 U.S. 264
(2007) (expanding the implied antitrust immunity conferred by regulation under the securities
laws). See generally Howard A. Shelanski, The Case for Rebalancing Antitrust and Regulation,
109 MICH. L. REV. 683 (2011) (discussing the reasoning and potential consequences of Trinko
and Credit Suisse).
14 See Andrew I. Gavil, Exclusionary Distribution Strategies by Dominant Firms: Striking a
Better Balance, 72 ANTITRUST L.J. 3, 42–51 (2004) (offering a detailed exposition and critique
of the rhetoric of the majority opinion in Trinko).
15 See Trinko, 540 U.S. at 407.
16 The opinion argues in particular that the prospect of monopoly induces risk-taking and
innovation. See id.
17 See id. at 414–15.
18 Id. at 408.
19 472 U.S. 585 (1983).
20 Trinko, 540 U.S. at 409; accord Pacific Bell Tel. Co. v. linkLine Commc’ns, Inc., 555 U.S.
438, 448 (2009) (dictum) (“[Aspen suggests that] a firm’s unilateral refusal to deal with its rivals
can give rise to antitrust liability [in] limited circumstances[.]”). Appeals courts have noted the
narrow reading that Trinko and linkLine give to Aspen. See, e.g., Broadcom Corp. v. Qualcomm
Inc., 501 F.3d 297, 316 (3d Cir. 2007); MetroNet Servs. Corp. v. Qwest Corp., 383 F.3d 1124,
1131–34 (9th Cir. 2004).
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preference for attacking conduct lacking a legitimate justification, combined
with the greater frequency of naked collusion relative to plain exclusion when
businesses operate in the shadow of antitrust enforcement. Part V also criticizes other policy arguments that have been offered for assigning lesser priority to exclusion, including one based on empirical studies, another rooted in
an analysis of institutional competence, and still others suggested by the Supreme Court in Trinko.
The troublesome rhetorical consensus placing exclusionary conduct at antitrust’s periphery, not its core, is not just unwarranted; it is damaging. The
more that exclusion is downplayed rhetorically, the more that its legitimacy as
a subject for antitrust enforcement will be undermined,21 so the greater the
likelihood that antitrust rules will eventually change to limit enforcement
against anticompetitive foreclosure when they should not. Accordingly, anticompetitive exclusion, like anticompetitive collusion, must be understood as
a core concern of competition policy.
Part VI of this article discusses the implications for antitrust enforcement of
recognizing exclusion as a core concern of competition policy along with collusion. Doing so could lead enforcers to assign a higher priority to attacking
exclusion than they do today, particularly challenging conduct foreclosing potential entry in markets subject to rapid technological change. In addition, it
would encourage further development of the doctrinal rule governing truncated condemnation of exclusionary conduct in the courts, and protect the
rules governing anticompetitive exclusion against pressure for modifications
that would limit enforcement.
I. EXCLUSION AS AN ANTITRUST CATEGORY
Exclusion and collusion are neither statutory nor doctrinal categories; they
are economic categories. The Sherman Act distinguishes between concerted
conduct (Section 1) and single-firm behavior (Section 2),22 each of which
could harm competition through exclusion or collusion.23 The doctrinal rules
developed to implement both the Sherman Act and the Clayton Act prohibition on anticompetitive mergers distinguish between horizontal and vertical
agreements, each of which again could harm competition through exclusion or
21 Cf. Jonathan B. Baker, Preserving a Political Bargain: The Political Economy of the NonInterventionist Challenge to Monopolization Enforcement, 76 ANTITRUST L.J. 605, 625–26
(2010) (“Had Microsoft come out differently, Trinko might have gone farther to question the
legitimacy of the antitrust bar on monopolization.”).
22 15 U.S.C. §§ 1–2. Sherman Act Section 2 also recognizes conspiracy to monopolize, but
this statutory provision is rarely invoked.
23 A single firm could harm competition collusively if a dominant firm fixes prices or divides
markets in cooperation with a fringe rival, for example.
2013]
EXCLUSION
AS A
CORE COMPETITION CONCERN
533
collusion.24 Although these legal categories continue to play a role in modern
antitrust analysis, “today’s antitrust lawyers, enforcers and courts focus far
more on the nature of the anticompetitive effects, and in private cases, the
antitrust injuries, alleged.”25 For this reason, the antitrust casebook I co-authored “separately groups conduct threatening collusive anticompetitive effects—including traditional horizontal agreements, vertical intrabrand
agreements and horizontal mergers—and conduct threatening exclusionary effects—including dominant firm behavior, vertical interbrand restraints and
vertical mergers.”26 In making this distinction, the casebook adopted the major
structural division employed by Judge Posner in his antitrust treatise and his
co-authored antitrust casebook.27
Although exclusionary claims are most commonly framed as challenges to
vertical agreements or monopolization, antitrust’s traditional doctrinal categories do not perfectly track the distinction between exclusion and collusion.
Vertical conduct is not invariably exclusionary. Agreements between manufacturers and distributors, for example, may harm competition by facilitating
collusion at either level as well as by excluding entrants into manufacturing or
distribution.28 Nor is horizontal conduct invariably collusive. The category includes, for example, exclusionary group boycotts.29
24 The Sherman Act also distinguishes between exclusionary and exploitative conduct. See
United States v. Grinnell Corp., 384 U.S. 563, 570–71 (1966) (noting that the exercise of market
power by a firm that obtained it “as a consequence of a superior product, business acumen, or
historic accident” is not actionable as monopolization). But see Einer Elhauge, Tying, Bundled
Discounts, and the Death of the Single Monopoly Profit Theory, 123 HARV. L. REV. 397, 420–26
(2009) (arguing that the Supreme Court’s tying jurisprudence is predicated in part on recognition
of the exploitation of monopoly power as a basis for liability). By contrast, in the European
approach to competition policy, a dominant firm can be found to have abused its position
through exploitative offenses such as charging higher prices, though such cases are rare. THE EC
LAW OF COMPETITION §§ 4.358–361 (Jonathan Faull & Ali Nikpay eds., 2d ed. 2007). It is an
open question whether exploitative conduct could be reached as a violation of FTC Act Section
5.
25 ANDREW I. GAVIL, WILLIAM E. KOVACIC & JONATHAN B. BAKER, ANTITRUST LAW IN PERSPECTIVE: CASES, CONCEPTS AND PROBLEMS IN COMPETITION POLICY vii (2d ed. 2008) [hereinafter ANTITRUST LAW IN PERSPECTIVE]. Although modern antitrust emphasizes effects, the
Sherman Act’s agreement requirement means that the statute does not reach every instance in
which firms harm competition through coordination. See Jonathan B. Baker, Two Sherman Act
Section 1 Dilemmas: Parallel Pricing, the Oligopoly Problem, and Contemporary Economic
Theory, 38 ANTITRUST BULL. 143 (1993).
26 ANTITRUST LAW IN PERSPECTIVE, supra note 25, at vii. The doctrinal categories are grouped
based on whether the harm to competition addressed in the leading cases more commonly results
from exclusion or collusion, but all the practices could harm competition either way.
27 See POSNER, supra note 7; RICHARD A. POSNER & FRANK H. EASTERBROOK, ANTITRUST:
CASES, ECONOMIC NOTES AND OTHER MATERIALS (2d ed. 1981); cf. BORK, supra note 7, at 134
(describing collusive and exclusionary conduct as “two theories of the ways in which competition may be injured that . . . shape and drive the law”).
28 See Leegin Creative Leather Prods., Inc. v. PSKS, Inc., 551 U.S. 877, 892–94 (2007) (discussing both collusive and exclusionary explanations for resale price maintenance).
29 E.g., Nw. Wholesale Stationers, Inc. v. Pac. Stationery & Printing Co., 472 U.S. 284 (1985).
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The antitrust rules most closely associated with exclusion—those governing the conduct of monopolists and would-be monopolists, and vertical
agreements—have long been among the most controversial in U.S. competition policy; the antitrust norms in these categories have aptly been described
as “contested.”30 Over the course of antitrust history, the Supreme Court has
repeatedly altered its approach to evaluating the legality of vertical non-price
restraints.31 The modern legal rule nearly inverts the rule applied forty-five
years ago.32 The standard used to test vertical agreements concerning price has
been even less consistent,33 and remains contested,34 although the case law did
not explicitly associate resale price maintenance with exclusion until recently.35 A switch of one vote would have led the Supreme Court to abandon
the longstanding per se prohibition against tying.36 Monopolization standards
30 William E. Kovacic, The Modern Evolution of U.S. Competition Policy Enforcement
Norms, 71 ANTITRUST L.J. 377, 410 (2003) (describing as “contested” the antitrust norms governing “abuse of dominance and vertical contractual restraints” between 1961 and 2000).
Kovacic sees different patterns in the evolution of norms developed in other areas of antitrust:
“progressive contraction (Robinson-Patman matters), progressive expansion (criminal and civil
horizontal restraints), [or] contraction followed by stabilization (mergers) . . . .” Id.
31 See, e.g., Richard A. Posner, The Next Step in the Antitrust Treatment of Restricted Distribution: Per Se Legality, 48 U. CHI. L. REV. 6, 6 (1981) (noting that between 1963 and 1976, the
legality of (non-price) distribution restrictions “oscillated from the Rule of Reason to per se
illegality and back”).
32 The Court adopted a rule of per se illegality in 1967, in United States v. Arnold, Schwinn &
Co., 388 U.S. 365 (1967), but overruled that decision in favor of applying the rule of reason ten
years later, in Continental T.V., Inc. v. GTE Sylvania Inc., 433 U.S. 36 (1977). Since 1977,
vertical non-price restraints have rarely been prohibited, leading one commentator to describe the
practical standard as close to per se legality. See Douglas H. Ginsburg, Vertical Restraints: De
Facto Legality Under the Rule of Reason, 60 ANTITRUST L.J. 67 (1991).
33 Since vertical restraints on price were held illegal per se in Dr. Miles Medical Co. v. John
D. Park & Sons Co., 220 U.S. 373 (1911), Congress authorized states to allow such agreements
(see Miller-Tydings Act, Pub. L. No. 314, 50 Stat. 693 (1937)), then broadened that authority
(see McGuire Act, Pub. L. No. 542, 66 Stat. 631 (1952)), and then returned the law to the rule of
per se illegality by repealing its authorization (see Consumer Goods Pricing Act of 1975, Pub. L.
No. 94-145, 89 Stat. 801). More recently, the Supreme Court overruled Dr. Miles and adopted
the rule of reason. Leegin, 551 U.S. at 907.
34 The Leegin decision drew a passionate dissent from four Justices. See id. at 908 (Breyer, J.,
dissenting). One month before the oral argument, an FTC Commissioner issued an unusual public statement detailing her disagreement with the Solicitor General’s pro-defendant brief. See
Letter from Pamela Jones Harbour, Commissioner, Fed. Trade Comm’n, to the Supreme Court of
the United States (Feb. 26, 2007), available at http://www.ftc.gov/speeches/harbour/070226verticalminimumpricefixing.pdf. The continuing controversy over resale price maintenance in the
wake of Leegin is discussed in Andrew Gavil, Resale Price Maintenance in the Post-Leegin
World: A Comparative Look at Recent Developments in the United States and European Union,
CPI ANTITRUST J., Summer 2010, Vol. 6, No. 1.
35 See Leegin, 551 U.S. at 892–94 (discussing both collusive and exclusionary explanations
for resale price maintenance).
36 See Jefferson Parish Hosp. Dist. No. 2 v. Hyde, 466 U.S. 2 (1984) (5-4 decision). However,
courts have found ways to avoid applying the per se prohibition when tying may promote competition. See, e.g., United States v. Microsoft Corp., 253 F.3d 34, 89–95 (D.C. Cir. 2001) (en banc).
See generally 1 ABA SECTION OF ANTITRUST LAW, ANTITRUST LAW DEVELOPMENTS 201–04
2013]
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are also controversial, as is evident from a debate between the federal antitrust
enforcement agencies early in the 21st century.37
From a contemporary perspective that recognizes the central role economic
concepts now play in antitrust, the controversies over monopolization and vertical restraints standards are best understood as proxy battles over the appropriate treatment of exclusionary conduct.38 This interpretation draws an
economic distinction between exclusion and collusion in preference to the
statutory distinction between single firm conduct and agreements, and the
doctrinal distinction between horizontal agreements on the one hand and vertical agreements and monopolization on the other.
As antitrust has come to focus on economic distinctions in preference to
doctrinal pigeonholes, exclusion has become an important and controversial
antitrust category. For this reason, the next Part looks across doctrinal categories in identifying common themes in the judicial approach to exclusionary
conduct.
II. EXCLUSION IN ANTITRUST CASE LAW AND DOCTRINE
The rhetorical consensus downplaying the significance of exclusionary conduct is surprising because anticompetitive exclusion is treated by antitrust law
as a serious competitive problem. A number of leading U.S. antitrust decisions, including recent ones, have been concerned primarily with exclusionary
conduct. Microsoft made it difficult for Netscape to market its browsers to
computer users in order to protect its Windows operating system monopoly
from the competition that would be created if software applications could access any operating system through the browser.39 Standard Oil exploited its
leverage over the railroads to stop the entry of new refiners in order to protect
its monopoly in oil refining.40 Before AT&T (the Bell System) was broken up,
(7th ed. 2012) [hereinafter ANTITRUST LAW DEVELOPMENTS]; HERBERT HOVENKAMP, FEDERAL
ANTITRUST POLICY: THE LAW OF COMPETITION AND ITS PRACTICE § 10.7a (4th ed. 2011).
37 During the George W. Bush administration, the Justice Department encouraged courts to
adopt a doctrinal approach that would favor defendants, but the Federal Trade Commission
pointedly refused to go along. At the start of the Obama administration, the Justice Department
withdrew the previous administration’s proposal. See Baker, supra note 21, at 606–07.
38 See POSNER, supra note 7, at 4 (arguing that the economic theory of monopoly had much
more to say about collusive practices than exclusionary ones, leading some economists and lawyers identified with the Chicago School (but not Posner) to the view “that there was no economic
basis for concern with the exclusionary practices”). But see Bus. Elecs. Corp v. Sharp Elecs.
Corp., 485 U.S. 717, 747–48 (1988) (Stevens, J., dissenting) (explaining the majority opinion as
turning, without justification, on treating the distinction between horizontal and vertical agreements as more important than the distinction between collusive and exclusionary conduct).
39 Microsoft, 253 F.3d at 64–67.
40 United States v. Standard Oil, 221 U.S. 1 (1911). See generally Elizabeth Granitz & Benjamin Klein, Monopolization by “Raising Rivals Costs”: The Standard Oil Case, 39 J.L. & ECON.
1 (1996). Compare George L. Priest, Rethinking the Economic Basis of the Standard Oil Refining
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it maintained market power in unregulated markets for specialized telephone
service and customer premises equipment by discriminating against rivals that
sought to connect with its regulated local telephone service monopoly.41 Visa
and MasterCard prevented member banks from issuing American Express and
Discover cards in order to protect their own market power.42
Exclusionary conduct allegations are also central to other antitrust decisions
commonly thought of as alleging collusion. The NCAA threatened two large
state universities with disciplinary action if they did not comply with the
NCAA’s arrangement for broadcasting college football games.43 Dentists that
did not comply with the advertising restrictions promulgated by the California
Dental Association could be censured or expelled.44 The National Society of
Professional Engineers encouraged state societies to launch disciplinary proceedings against engineers that did not comply with its ethical code, which
included the challenged restrictions on competitive bidding restrictions.45 The
predatory conspiracies alleged (but ultimately not demonstrated) in Brooke
Group and Matsushita were said to have excluded generic cigarettes and a
U.S. firm manufacturing televisions, respectively.46 The horizontal (collusive)
market division agreement attacked in Topco allowed the firms to prevent
their rivals from selling the cooperative’s private label products.47 The nearly
two hundred insurance companies indicted for price fixing during the early
1940s were also accused of employing boycotts, coercion, and intimidation to
prevent competition from firms that were not members of their trade
association.48
During the modern era, moreover, the Supreme Court and the appellate
courts have addressed exclusionary conduct without consistently favoring eiMonopoly: Dominance Against Competing Cartels, 85 S. CAL. L. REV. 499 (2012) (questioning
some of Granitz & Klein’s argument), with Benjamin Klein, The “Hub-and-Spoke” Conspiracy
that Created the Standard Oil Monopoly, 85 S. CAL. L. REV. 459 (2012) (responding to Priest).
41 See United States v. AT&T, 552 F. Supp. 131, 162, 170 (D.D.C. 1982) (entering consent
decree requiring divestitures), aff’d, 714 F.2d 178 (D.C. Cir. 1983).
42 United States v. Visa U.S.A., Inc., 344 F.3d 229, 240 (2d Cir. 2003).
43 NCAA v. Bd. of Regents of the Univ. of Okla., 468 U.S 85, 85 (1984).
44 Cal. Dental Ass’n v. FTC, 526 U.S. 756 (1959).
45 United States v. Nat’l Soc’y of Prof’l Eng’rs, 389 F. Supp. 1193, 1210 (D.D.C. 1974), aff’d
555 F.2d 978 (D.C. Cir. 1977), aff’d 435 U.S. 679 (1978).
46 Brooke Grp. Ltd. v. Brown & Williamson Tobacco Corp., 509 U.S. 209 (1993); Matsushita
Elec. Indus. Co., v. Zenith Radio Corp., 475 U.S. 574 (1986). Brooke Group was arguably decided incorrectly. See Jonathan B. Baker, Predatory Pricing after Brooke Group: An Economic
Perspective, 62 ANTITRUST L.J. 585, 598 (1994) (“[T]he Court took the case from the jury to
award judgment to the defendant when the record on this key question of fact, construed favorably to plaintiff, arguably supported plaintiff’s position.”).
47 United States v. Topco Assocs., 405 U.S. 596 (1972). See generally Peter C. Carstensen &
Harry First, Rambling Through Economic Theory: Topco’s Closer Look, in ANTITRUST STORIES
171, 171–204 (Eleanor M. Fox & Daniel A. Crane eds., 2007).
48 United States v. South-Eastern Underwriters Ass’n, 322 U.S. 533, 535–36 (1944).
2013]
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537
ther defendants or plaintiffs.49 Looking to outcome, reasoning, and tone, decisions of the courts of appeals during the first half of 2011 (an arbitrarily
chosen recent period),50 as well as notable decisions of the circuit courts and
the Supreme Court from the past three decades,51 do not systematically favor
either side.
To show how seriously the courts take exclusionary conduct, this article
adopts two approaches. Part II.A documents the wide range of exclusionary
conduct that the courts have evaluated. This informal survey shows that anticompetitive exclusion has not been downplayed by the courts through limitation to a narrow range of practices, contrary to what the rhetoric of enforcers
and commentators might suggest.
Part II.B identifies parallels in the formal structure of the emerging doctrinal rules employed by the courts to identify anticompetitive exclusionary and
anticompetitive collusive conduct. In particular, the courts have evolved a
similar approach to the two doctrinal areas: adopting a presumption in each
against conduct lacking a plausible efficiency justification. Although these
49 The relative success of plaintiffs and defendants is difficult to interpret because it may
depend on a variety of factors beyond the general attitude of the courts, including whether legal
rules are changing, the willingness of firms to engage in questionable conduct that could be
challenged, and the willingness of the parties to a lawsuit to litigate rather than settle. Accordingly, even a consistently one-sided pattern of decisions may be a poor indicator of judicial
attitudes toward exclusionary conduct.
50 During this period, arguably pro-enforcement exclusion decisions were issued by circuit
courts of appeals in Watson Carpet & Floor Covering, Inc. v. Mohawk Industries, Inc., 648 F.3d
452 (6th Cir. 2011), E.I DuPont de Nemours & Co. v. Kolon Industries, Inc., 637 F.3d 435 (4th
Cir. 2011), and Realcomp II, Ltd. v. FTC, 635 F.3d 815 (6th Cir. 2011), while arguably noninterventionist exclusion decisions were issued in Southeast Missouri Hospital v. C.R. Bard Inc.,
642 F.3d 608 (8th Cir. 2011), Brantley v. NBC Universal, Inc., 649 F.3d 1078 (9th Cir. 2011),
and Smugglers’ Notch Homeowners Association v. Smugglers’ Notch Management Co., 414 F.
App’x 372 (2d Cir. 2011).
51 The Supreme Court exclusion decisions listed below more often take the non-interventionist
side, exclusively so since 1993, but the circuit courts do not appear to have interpreted the recent
pattern as a mandate to raise the bar to plaintiffs in exclusion cases. Notable decisions from the
Supreme Court and appellate courts arguably on the pro-enforcement side of the ledger include
Eastman Kodak Co. v. Image Technical Services, Inc., 504 U.S. 451 (1992); Aspen Skiing Co. v.
Aspen Highlands Skiing Corp., 472 U.S. 585 (1983); Spirit Airlines, Inc. v. Northwest. Airlines,
Inc., 431 F.3d 917 (6th Cir. 2005); United States v. Dentsply International, Inc., 399 F.3d 181
(3d Cir. 2005); United States v. Visa, 344 F.3d 229 (2d Cir. 2003); LePage’s Inc. v. 3M, 324 F.3d
141 (3d Cir. 2003); United States v. Microsoft Corp., 253 F.3d 34 (D.C. Cir. 2001) (en banc);
and JTC Petroleum Co. v. Piasa Motor Fuels, Inc., 190 F.3d 775 (7th Cir. 1999). Notable decisions arguably on the non-interventionist side include Pacific Bell Telephone Co. v. linkLine
Communications, Inc., 555 U.S. 438 (2009); Verizon Communications Inc. v. Law Offices of
Curtis V. Trinko, LLP, 540 U.S. 398, 408 (2004); Brooke Group Ltd. v. Brown & Williamson
Tobacco Corp., 509 U.S. 209 (1993); Spectrum Sports, Inc. v. McQuillan, 506 U.S. 447 (1993);
Matsushita Electric Industrial Co, v. Zenith Radio Corp., 475 U.S. 574 (1986); Jefferson Parish
Hospital District No. 2 v. Hyde, 466 U.S. 2 (1984); Cascade Health Solutions v. PeaceHealth,
515 F.3d 883 (9th Cir. 2008); E&L Consulting, Ltd. v. Doman Industries Ltd., 472 F.3d 23 (2d
Cir. 2006); United States v. AMR Corp., 335 F.3d 1109 (10th Cir. 2003); and Omega Environmental, Inc. v. Gilbarco, Inc., 127 F.3d 1157 (9th Cir. 1997).
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presumptions are invoked more frequently in collusion cases than exclusion
cases, the difference is attributable to the greater frequency with which antitrust enforcers and private plaintiffs challenge facially anticompetitive collusion, and not to any difference in how tough the rules are when the two types
of anticompetitive conduct are identified. Part II.C explains why those structural parallels will remain as courts clarify open questions regarding the
emerging truncated rule governing exclusionary conduct.
A. EXCLUSIONARY PRACTICES IDENTIFIED
BY THE
COURTS
The courts do not treat anticompetitive exclusion as an unusual event; instead they have recognized that exclusionary conduct harming competition
can take a wide range of forms.52 The anticompetitive possibilities surveyed
have been divided into three broad categories based on the mechanism by
which exclusion takes place, with an eye toward the economic analysis in Part
III.53 In general, these practices are neither necessarily nor invariably anticompetitive, as rivals could be excluded without harm to competition, and practices that exclude rivals could help firms lower costs, improve products, or
otherwise achieve efficiencies as well as helping them obtain or maintain market power. The survey is not intended as an inventory of all possible means of
exclusion; rather, it is intended to illustrate the breadth of conduct that could
harm competition through foreclosure.
The practices described in the first two categories exclude rivals by imposing a constraint on the latter firms’ conduct, as by raising rivals’ costs or, to
similar effect, reducing rivals’ access to customers.54 The methods in the first
category can be undertaken by the excluding firms acting alone, whether
through the unilateral action of a single excluding firm or the joint action of a
group of excluding firms. The methods in the second category require the
excluding firms to coordinate with firms that are not rivals through the
purchase of an exclusionary right. Because coordination is required, the profitability of practices in the second category turns in part on factors not relevant to the profitability of practices in the other categories, as discussed below
in Part IV.B. In the third category, the excluding firms discourage competition
52 See generally Richard M. Steuer, Foreclosure, in 2 ABA SECTION OF ANTITRUST LAW,
ISSUES IN COMPETITION LAW AND POLICY 925, 926–29 (Wayne Dale Collins ed., 2008) (surveying case law).
53 For an alternative classification scheme more closely tied to familiar doctrinal categories,
see Scott Hemphill & Tim Wu, Parallel Exclusion, 122 YALE L.J. 1182 (2013) (identifying six
mechanisms of foreclosure: simple exclusion, recruiting agents, overbuying an input, tying and
bundling, resale price maintenance, and most favored nations provisions).
54 Input foreclosure strategies are commonly thought of as raising rivals’ costs while customer
foreclosure strategies are commonly thought of as limiting rivals’ access to the market, but customer foreclosure strategies can also be understood as another form of raising rivals’ costs because they raise rivals’ costs of distribution.
2013]
EXCLUSION
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539
by altering their rivals’ incentives, in particular by credibly threatening the
rivals with harm should the latter firms seek to compete aggressively.
1. Constraints Imposed on Rival Conduct
The most obvious anticompetitive exclusionary strategies directly constrain
rivals by imposing costs or reducing rivals’ access to customers. A dominant
firm might destroy a fringe rival’s distribution facilities,55 or obtain a monopoly position through fraudulent acquisition of a patent.56 To similar effect,
a vertically integrated dominant firm could redesign its upstream product
in order to create an incompatibility for its downstream rival.57 A firm
may also directly exclude its rivals by failing to disclose in advance its patent
55 See Conwood Co. v. U.S. Tobacco Co., 290 F.3d 768, 778 (6th Cir. 2002) (discussing a
dominant manufacturer of snuff that excluded a fringe rival by destroying its rival’s in-store
display racks); Kenneth P. Brevoort & Howard P. Marvel, Successful Monopolization Through
Predation: The National Cash Register Company, 21 RES. IN L. & ECON. 85 (John B. Kirkwood
ed., 2004) (discussing a dominant firm maintained its monopoly power in part through espionage
and sabotage; federal criminal prosecution settled by consent). Allegedly tortious conduct accompanied a restriction on access to supply in Watson Carpet & Floor Covering, Inc. v. Mohawk
Industries, Inc., 648 F.3d 452, 455 (6th Cir. 2011), which involved “false derogatory accusations
about [the excluded firm to] potential customers[.]” See also Nat’l Ass’n of Pharm. Mfrs., Inc. v.
Ayerst Labs., 850 F.2d 904, 916 (2d Cir. 1988) (noting that dominant firm’s public statements
disparaging rival’s product would support monopolization claim if “(1) clearly false, (2) clearly
material,[ and] (3) clearly likely to induce reasonable reliance”); Int’l Travel Arrangers, Inc. v.
W. Airlines, Inc., 623 F.2d 1255, 1262 (8th Cir. 1980) (dominant firm’s exclusionary conduct
included a false, misleading, and deceptive newspaper ad). Managers at one pizza chain were
recently charged with arson after allegedly burning down a rival’s nearby store in order to increase sales, though no antitrust violation was apparently charged. Florida Domino’s Managers
Charged with Burning Down Rival Pizza Parlor, FOXNEWS.COM (Oct. 29, 2011), http://www.fox
news.com/us/2011/10/29/florida-dominos-managers-charged-with-burning-down-rival-pizzaparlor/print#ixzz1d1mfXJ3B. Business torts can exclude rivals without harming competition,
though, and thus do not necessarily also constitute violations of the antitrust laws.
56 Walker Process Equip., Inc. v. Food Mach. & Chem. Corp., 382 U.S. 172 (1965).
57 E.g., C.R. Bard, Inc. v. M3 Sys., Inc., 157 F.3d 1340, 1382–83 (Fed. Cir. 1998). A deceptive misrepresentation concerning incompatibility may similarly harm competition if believed.
See Joseph Farrell, Janis K. Pappalardo & Howard Shelanski, Economics at the FTC: Mergers,
Dominant-Firm Conduct, and Consumer Behavior, 37 REV. INDUS. ORG. 263, 268 (2010)
(describing the FTC complaint against Intel resolved by consent settlement as based in part on
this theory).
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rights in a technology adopted as an industry standard,58 engaging in sham
litigation,59 or manipulating a regulatory scheme.60
Other methods by which firms can impose constraints that exclude rivals
may be less direct but equally harmful. A vertically integrated dominant firm
can refuse to sell a key input to rivals,61 or degrade the quality of the input it
provides, as by refusing to sell the highest quality inputs.62 A vertical merger
may threaten anticompetitive exclusion by conferring an incentive for the
merged firm unilaterally to foreclose upstream rivals from access to distribution (customer foreclosure) or unilaterally to foreclose downstream rivals
from access to a key input (input foreclosure).63 A dominant firm can exclude
its rivals by refusing to deal with their suppliers, thereby discouraging the
suppliers from dealing with competing firms.64 A dominant firm that sells
complementary products can take customers away from an unintegrated rival,
thereby reducing the rival’s scale of operations and so raising its costs. The
dominant firm can also accomplish the same end by tying complementary
products together,65 offering discounts to buyers purchasing a package of
58 Several related exclusion scenarios are suggested by the case law. All suppose that a standard-setting organization (SSO) selects a particular technology owned by one firm in preference
to alternative technologies, conditional on a representation by the firm that it does not have
intellectual property covering the standard or that it will abide by a commitment to license on a
non-discriminatory basis and charge reasonable royalties if the technology is selected. After the
technology is incorporated into the standard, and firms adopting the standard make sunk investments to use it (become locked-in), the firm owning the technology acts inconsistently with its
commitment, as by asserting intellectual property rights and charging royalties (see Dell Computer Corp., 121 F.T.C. 616 (1996)), charging unreasonably high royalties, or preventing firms
from using its intellectual property if they compete with it in the sale of products that incorporate
the standard. See Broadcom Corp. v. Qualcomm Inc., 501 F.3d 297, 316 (3d Cir. 2007).
59 Cal. Motor Transp. Co. v. Trucking Unlimited, 404 U.S. 508 (1972).
60 In re K-Dur Antitrust Litig., 686 F.3d 197 (3d Cir. 2012).
61 E.g., Aspen Skiing Co. v. Aspen Highlands Skiing Corp., 472 U.S. 585 (1985) (firm controlling three of the four mountains at a leading destination ski resort excluded the company
owning the fourth mountain from participating in a multi-area ski ticket, making it difficult for
the excluded firm to attract customers scheduling week-long ski vacations).
62 Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007) (major local telephone companies, which
had different territorial footprints, allegedly acted in concert to evade their statutory obligation to
interconnect with new rivals by making interconnection costly and cumbersome or providing low
quality connections).
63 Applications of Comcast Corporation, General Electric Company, and NBC Universal, Inc.,
For Consent to Assign Licenses and Transfer Control of Licensees, Memorandum Opinion and
Order, 26 FCC Rcd. 48 (2011) (noting that Comcast could disadvantage rival video distributors
by denying them access to NBC programming or raising the price, and disadvantage rival programming suppliers by denying them access to Comcast’s video distribution customers or charging them more), available at transition.fcc.gov/FCC-11-4.pdf.
64 Lorain Journal Co. v. United States, 342 U.S. 143 (1951) (monopolist newspaper refused to
accept ads from firms that advertised on a new radio station).
65 See Eastman Kodak Co. v. Image Technical Servs., Inc., 504 U.S. 451 (1992) (Kodak allegedly tied copier parts to copier service in order to exclude independent service operators). Tying
or bundling may be employed as an exclusionary strategy. See, e.g., Dennis W. Carlton &
Michael Waldman, The Strategic Use of Tying to Preserve and Create Market Power in Evolving
2013]
EXCLUSION
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CORE COMPETITION CONCERN
541
products,66 or offering discounts to buyers based on the share of the buyer’s
total input purchases accounted for by the excluding seller.67 Similar exclusionary strategies to those set forth above could be employed by a group of
excluding firms acting collectively to harm a rival, as through an exclusionary
group boycott,68 parallel exclusionary conduct,69 or pooling weak patents.70
2. Purchase of an Exclusionary Right
The exclusionary strategies in the second category require the involvement
of non-excluding firms to raise rivals’ costs, as through vertical agreement. A
firm can foreclose its rivals by contracting with sellers of key inputs, inexpensive distribution, or other complementary products or services to raise the
price that rivals must pay for the complement or to deny rivals access to that
product entirely.71 A dominant firm may also employ other contracting strategies to raise rivals’ costs. It may overbuy a key input to bid up the market
Industries, 33 RAND J. ECON. 194, 209 (2002); John Simpson & Abraham L. Wickelgren, Bundled Discounts, Leverage Theory, and Downstream Competition, 9 AM. L. & ECON. REV. 370
(2007); Michael D. Whinston, Exclusivity and Tying in U.S. v. Microsoft: What We Know, and
Don’t Know, J. ECON. PERSP., Spring 2001, at 63; Michael D. Whinston, Tying, Foreclosure, and
Exclusion, 80 AM. ECON. REV. 837 (1990). See generally Eliana Garcés, An Introduction to
Tying, Foreclosure, and Exclusion by M.D. Whinston, 8 COMPETITION POL’Y INT’L 145 (2012)
(literature survey). Other explanations for tying include price discrimination, which could either
harm or promote competition, and an effort to achieve efficiencies such as scale or scope economies for sellers or a reduction in transaction costs for buyers. See, e.g., Marius Schwartz &
Daniel Vincent, Quantity Forcing and Exclusion: Bundled Discounts and Nonlinear Pricing, in 2
ISSUES IN COMPETITION LAW AND POLICY, supra note 52, at 939; David S. Evans & Michael
Salinger, Why Do Firms Bundle and Tie? Evidence from Competitive Markets and Implications
for Tying Law, 22 YALE J. ON REG. 37 (2005).
66 Cascade Health Solutions v. PeaceHealth, 515 F.3d 883 (9th Cir. 2008).
67 See Farrell et al., supra note 57, at 267 (discussing FTC complaint resolved by consent
settlement based on this theory). Market share discounts could exclude rivals through two economic mechanisms. First, they may operate like a tax on incremental buyer purchases from
competitors. See id. Second, if rivals’ marginal costs increase as their output falls, market share
discounts (like quantity discounts) could shift sales away from rivals, thereby raising rivals’ costs
by denying them economies of scale. See id.
68 E.g., Nw. Wholesale Stationers, Inc. v. Pac. Stationery & Printing Co., 472 U.S. 284 (1985)
(discussing office supply store members of a purchasing cooperative that expelled a rival).
69 See generally Hemphill & Wu, supra note 53.
70 See United States v. Singer Mfg. Co., 374 U.S. 174 (1963). The pooling of patents that
would be essential (or otherwise substitutes) if valid could harm competition through exclusion
by reducing the likelihood that questionable patents would be reviewed for validity. Pooling
could also benefit competition if used to avoid costly litigation over patent boundaries.
71 Alcoa, the early 20th century aluminum monopolist, entered into contracts with hydroelectric power producers that barred the power companies from supplying electricity to other aluminum manufacturers. See United States v. Aluminum Co. of Am., 148 F.2d 416, 422 (2d Cir.
1945) (Alcoa) (describing 1912 government enforcement action); see also United States v.
Dentsply Int’l., Inc., 399 F.3d 181 (3d Cir. 2005); United States v. Microsoft Corp., 253 F.3d 34
(D.C. Cir. 2001) (exclusionary agreements between Microsoft and Original Equipment Manufacturers and Internet Access Providers). When the excluded firm is forced to adopt a higher cost
method of distribution, this exclusionary approach is sometimes described as disrupting an optimal distribution strategy.
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price; this may be worth it if the higher input price forces rivals to exit,72 or if
the strategy raises competitors’ marginal costs, and thus increases the market
price by more than the dominant firm’s own average costs rise.73 The dominant firm may also exclude rivals by contracting with suppliers to give the
monopolist the benefit of any discount the suppliers offer a rival.74
3. Commitment to Tough Competition
In the third category of exclusionary strategies, excluding firms, perhaps
especially dominant firms, scare off competition through commitments that
convince rivals that aggressive conduct will be met with a strong response.
Such a strategy works when the rivals conclude that their best response is to
live and let live—to avoid entry, price cutting, or other competitive moves
that would provoke the giant.75 The leading antitrust example involves predatory pricing: a multimarket monopolist may respond aggressively to single
market entry, and profit from doing so mainly by discouraging entry in other
markets, allowing the monopolist to protect its market power there.76 In addi72 See, e.g., Weyerhauser Co. v. Ross-Simmons Hardwood Lumber Co., 549 U.S. 312 (2007)
(dominant seller of hardwood lumber allegedly protected the market power of its hardwood lumber mills by bidding up the price of logs, in order to force a rival mill to exit). Overbuying could
alternatively be viewed as a constraint on rival conduct, and placed in the first category.
73 In general, a firm’s marginal cost is the cost concept relevant to determining its price, while
its average cost is the cost concept relevant to determining its profitability.
74 See, e.g., Complaint at 3–6, United States v. Blue Cross Blue Shield of Mich., 2012 WL
4513600 (E.D. Mich. Oct. 1, 2012) (No. 10-CV-14155), available at http://www.justice.gov/atr/
cases/f263200/263235.htm; United States v. Delta Dental of R.I., 943 F. Supp. 172, 174–75
(D.R.I. 1996). These contractual provisions are termed “most favored nations” or “most favored
customer” clauses. They can protect the dominant firm from new competition by making it impossible for an entrant to obtain key inputs cheaply from suppliers that might have been willing
to give the entrant a discount in exchange for a large share of the entrant’s business. Most
favored customer provisions can also harm competition by facilitating coordination. See generally Jonathan B. Baker, Vertical Restraints with Horizontal Consequences: Competitive Effects
of “Most-Favored-Customer” Clauses, 64 ANTITRUST L.J. 517 (1996).
75 See generally Richard J. Gilbert, Mobility Barriers and the Value of Incumbency, in 1
HANDBOOK OF INDUSTRIAL ORGANIZATION 475, 476–530 (Richard Schmalensee & Robert Willig eds., 1989) (excluding firms can make investments that commit them to an aggressive response to future rivalry, with the consequence that future competition is deterred); Steven C.
Salop, Strategic Entry Deterrence, 69 AM. ECON. REV. PAPERS & PROCEEDINGS 335 (1979)
(same); see also JOHN SUTTON, SUNK COSTS AND MARKET STRUCTURE (1981) (excluding firms
may be able to deter entry by raising a new firm’s post-entry marginal costs of production and
distribution, as through investments that have the effect of increasing the sunk investments a new
firm must make on marketing or research and development if it chooses to enter).
76 Spirit Airlines, Inc. v. Nw. Airlines, Inc., 431 F.3d 917, 921–24 (6th Cir. 2005). A predator
may also succeed by convincing lenders or investors no longer to support the prey (“deep
pocket” predation), by convincing a prospective entrant that the predator’s costs are too low to
make entry profitable (predation by “cost-signaling”), or by convincing a prospective entrant that
its product will be unattractive to buyers (“test-market” predation). See generally Patrick Bolton,
Joseph F. Brodley & Michael H. Riordan, Predatory Pricing: Strategic Theory and Legal Policy,
88 GEO. L.J. 2239 (2000); Aaron S. Edlin, Stopping Above-Cost Predatory Pricing, 111 YALE
L.J. 941 (2002). Predatory pricing may also succeed by denying the prey economies of scale
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EXCLUSION
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543
tion, a dominant firm’s contract with suppliers to give the monopolist the
benefit of discounts offered to rivals could be viewed as a commitment by the
monopolist to match any price reduction by a rival (as well as falling into the
previous category, purchase of an exclusionary right).
B. PARALLEL LEGAL RULES
The breadth of practices considered exclusionary in the case law suggests
that the courts take exclusion seriously. The parallel structure of the legal
rules governing exclusion and collusion similarly suggests that exclusionary
conduct is not assigned a lower priority in antitrust law, regardless of differences in the relative frequency with which the two types of conduct are challenged. As will be seen, both types of allegations are generally reviewed
under the rule of reason, and in the emerging framework for doing so, courts
employ analogous methods of truncation based importantly on the absence of
a plausible efficiency justification.77 The parallelism in legal rules is not primarily a legacy of antitrust’s historical reliance on doctrinal categories that
encompass both exclusionary and collusive conduct.78 Instead, the truncation
when the prey has fewer captive buyers, Chiara Fumagalli & Massimo Motta, A Simple Theory
of Predation 1–10 (IGIER Working Paper No. 437, 2012), available at http://www.igier.uni
bocconi.it/files/437.pdf, or by denying the prey demand side scale economies on the other side of
a two-sided platform, Massimo Motta & Helder Vasconcelos, Exclusionary Pricing in a TwoSided Market (Centre for Econ. Pol’y Research, Discussion Paper No. 9164, 2012). Recent economic studies provide multiple examples of predatory pricing. See, e.g., Kenneth G. Elzinga &
David E. Mills, Predatory Pricing in the Airline Industry: Spirit Airlines v. Northwest Airlines
(2005), in THE ANTITRUST REVOLUTION 219 (John E. Kwoka, Jr. & Lawrence J. White eds., 5th
ed. 2009); Malcolm R. Burns, Predatory Pricing and the Acquisition Cost of Competitors, 94 J.
POL. ECON. 266 (1986); David Genesove & Wallace P. Mullin, Predation and Its Rate of Return:
The Sugar Industry, 1887–1914, 37 RAND J. ECON. 47 (2006); Fiona Scott Morton, Entry and
Predation: British Shipping Cartels 1879–1929, 6 J. ECON. & MGMT. STRATEGY 679, 714
(1997); David F. Weiman & Richard C. Levin, Preying for Monopoly? The Case of Southern
Bell Telephone Company, 1894–1912, 102 J. POL. ECON. 103 (1994).
77 The terms “truncated” or “structured” refer to a collection of analytical approaches—per se
rules, quick look rules, presumptions, and burden shifting—that potentially condition liability on
a limited factual inquiry rather than requiring courts to engage in a wide-open reasonableness
analysis. Limiting the factual inquiry is advantageous if it reduces the costs of operating the legal
system and provides guidance to firms seeking to comply with the antitrust laws and to generalist
judges seeking to enforce those laws—under circumstances in which limiting the evidence considered is unlikely to result in erroneous decisions relative to what a fact-finder would conclude
from a complete factual review. See ANTITRUST LAW IN PERSPECTIVE, supra note 25, at 206; id.
at 103–06 (discussing benefits and costs of per se condemnation). But see Abraham L. Wickelgren, Determining the Optimal Antitrust Standard: How to Think About Per Se Versus Rule of
Reason, 85 S. CAL. L. REV. POSTSCRIPT 52, 54 (2012) (noting that, in some settings, more evidence may not improve judicial accuracy, and improved accuracy may not improve firm behavior). In general, the errors from truncation could go in either direction: truncated rules could
sweep in conduct that should not be condemned, or avoid condemning conduct that should be
prohibited. Conduct that avoids condemnation on a quick look can still be reviewed under the
comprehensive rule of reason.
78 Antitrust’s traditional legal categories do not divide perfectly along exclusion vs. collusion
lines. See supra Part I. While exclusion cases tend to be framed as vertical agreements or merg-
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methods reflect a modern evolution in rule of reason review that applies to
both collusion and exclusion, and shows that courts do not place a higher
burden on plaintiffs seeking to demonstrate anticompetitive exclusionary
conduct.
In both the exclusion and the collusion context, the legal rules single out for
particular attention anticompetitive conduct lacking a plausible efficiency justification. The term “naked” is often applied to collusive agreements among
rivals to fix prices, divide markets, or otherwise harm competition that cannot
plausibly be justified as efficient.79 The term “plain exclusion” will be used to
describe the comparable exclusionary conduct: anticompetitive exclusion
lacking a plausible efficiency justification.80 “Cheap exclusion” is a type of
plain exclusion, namely plain exclusion that is also inexpensive for the excluding firms to implement.81
It is commonplace today that agreements among rivals (which more commonly threaten collusive rather than exclusionary harms), when reviewed
under Sherman Act Section 1, are analyzed under the rule of reason through
ers, or as monopolization or attempts to monopolize, those categories can also be employed to
attack collusive conduct, and the legal categories in which collusive cases tend to be framed,
including horizontal agreements, can also be employed to attack exclusionary conduct. Within a
doctrinal category, moreover, the legal rule generally does not differ depending on whether the
alleged conduct is collusive or exclusionary. The rules governing group boycotts may be an
exception, however. The Supreme Court’s collusive group boycott decision in FTC v. Superior
Court Trial Lawyers Association (SCTLA) treated that conduct as tantamount to price fixing
among rivals. 493 U.S. 411, 423 (1990). The SCTLA majority did not make reference to the
Court’s then-recent exclusionary group boycott decision, Northwest Wholesale Stationers, Inc. v.
Pacific Stationery and Printing Co., 472 U.S. 284 (1985). Stationers appears to demand a more
extensive showing (perhaps including proof of market power) before applying a per se rule to
invalidate the conduct than is required for horizontal price fixing—though it is not possible to
say more than “appears” and “perhaps” because Stationers does not clearly delineate the elements of the per se rule it applies. In the wake of Stationers, the lower courts have grappled
inconclusively with the issue. See 1 ANTITRUST LAW DEVELOPMENTS, supra note 36, at 492–93.
79 See, e.g., White Motor Co. v. United States, 372 U.S. 253, 263 (1963) (“Horizontal territorial limitations . . . are naked restraints of trade with no purpose except stifling of competition.”).
80 The seemingly analogous term “naked exclusion” was not adopted because that phrase is
used in the economics literature to describe a particular economic model. See Eric B. Rasmusen,
J. Mark Ramseyer & John S. Wiley, Jr., Naked Exclusion, 81 AM. ECON. REV. 1137 (1991). But
see Jonathan M. Jacobson, Exclusive Dealing, “Foreclosure,” and Consumer Harm, 70 ANTITRUST L.J. 311, 360 (2002) (referring to “naked” exclusion); Krattenmaker & Salop, supra note
9, at 227 (same). Plain exclusion in a Sherman Act Section 2 setting has been referred to as “no
efficiency justification” monopolization. Harry First, The Case for Antitrust Civil Penalties, 76
ANTITRUST L.J. 127, 160 (2009).
81 Susan A. Creighton, D. Bruce Hoffman, Thomas G. Krattenmaker & Ernest A. Nagata,
Cheap Exclusion, 72 ANTITRUST L.J. 975, 977 (2005); Patricia Schultheiss & William E. Cohen,
Cheap Exclusion: Role and Limits (Jan. 14, 2009) (unpublished manuscript), available at http://
www.ftc.gov/os/sectiontwohearings/docs/section2cheapexclusion.pdf. The concept of cheap exclusion was developed in part as a guide to the enforcement agencies in allocating investigative
resources, and incorporated the expense of implementation on the view that it would be related to
the likelihood of uncovering anticompetitive exclusion.
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an analysis that can be structured or truncated using quick look or burdenshifting approaches.82 In consequence, a horizontal restraint can be condemned without a comprehensive analysis of its effects on competition if
three elements are demonstrated: (a) an agreement among rivals,83 (b) certain
facts suggesting the likelihood of harm to competition; and (c) the absence of
a plausible efficiency justification for the agreement at issue. The second element may be satisfied by showing that the conduct falls in a traditional per se
category (price fixing or market division),84 by showing that anticompetitive
effect is intuitively obvious based on facial analysis of the agreement,85 or
(with retrospective conduct) through actual effects evidence demonstrating
that competition has been harmed.86
82 See Andrew I. Gavil, Moving Beyond Caricature and Characterization: The Modern Rule
of Reason in Practice, 85 S. CAL. L. REV. 733, 744–53 (2012); see also ANTITRUST LAW IN
PERSPECTIVE, supra note 25, at 206 (plaintiffs seek courts to truncate the rule of reason review of
horizontal restraints in order “to condemn conduct without detailed analysis of market power and
likely effects” when the conduct “is facially objectionable or has actual adverse effects,” and to
do so when the conduct “would be in a traditional per se category but for plausible efficiencies,
and on review the efficiencies do not actually appear substantial”). Courts may also consider
truncating the rule of reason review of horizontal restraints in order to exculpate conduct when
defendants collectively have a low market share. Id. In the context of burden shifting, however,
the latter possibility would presumably be considered only after both plaintiff and defendant have
satisfied their initial burdens of production.
83 Application of Sherman Act Section 1 is predicated on proof of agreement; the rules discussed in this paragraph govern the analysis of agreements among (horizontal) competitors. See
Sherman Act, 15 U.S.C. § 1. The agreement element often goes undisputed, but if an agreement
among rivals must be inferred from circumstantial evidence, that element may be difficult to
assess. See generally Baker, supra note 25; Louis Kaplow, Direct vs. Communications-Based
Prohibitions on Price-Fixing, 3 J. LEGAL ANALYSIS 449 (2011). Antitrust law could in theory
condemn collusive conduct on a truncated basis without proof of agreement among rivals if the
other elements of the truncated rule are present, but the limited experience with identifying collusive effects from unilateral conduct after Ethyl and from vertical agreements after GTE Sylvania
and Leegin offers little guidance as to whether and when courts would do so. See generally
Leegin Creative Leather Prods., Inc. v. PSKS, Inc., 551 U.S. 877 (2007) (resale price maintenance); Cont’l T.V., Inc. v. GTE Sylvania Inc., 433 U.S. 36 (1977) (non-price restraints); E.I. du
Pont de Nemours & Co. v. FTC, 729 F.2d 128 (2d Cir. 1984) (Ethyl).
84 See, e.g., Palmer v. BRG of Ga., Inc., 498 U.S. 46 (1990) (horizontal market division);
United States v. Trenton Potteries Co., 273 U.S. 392 (1927) (horizontal price fixing). The Supreme Court has also recognized that a collusive group boycott is tantamount to horizontal price
fixing. FTC v. Superior Ct. Trial Lawyers Ass’n, 493 U.S. 411, 436 n.19 (1990).
85 See, e.g., PolyGram Holding, Inc. v. FTC, 416 F.3d 29, 36 (D.C. Cir. 2005) (“If, based upon
economic learning and the experience of the market, it is obvious that a restraint of trade likely
impairs competition, then the restraint is presumed unlawful . . . .”). The court went on to find
this criterion satisfied by an agreement between joint venturers to restrain price cutting and advertising with respect to products not part of the joint venture. Id.
86 E.g., FTC v. Ind. Fed’n of Dentists, 476 U.S. 447 (1986); NCAA v. Bd. of Regents of the
Univ. of Okla., 468 U.S 85 (1984). But see Republic Tobacco Co. v. N. Atl. Trading Co., 381 F.
3d 717, 737 (7th Cir. 2004) (noting that even though Indiana Federation of Dentists does not
allow a plaintiff to dispense entirely with market definition by proffering actual effects evidence,
a plaintiff must still show the “rough contours” of a market and that defendant commands a
substantial share). In a retrospective exclusion case, for example, proof that prices rose after a
rival was excluded might count as actual effects evidence. (The probative value of actual effects
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This approach is typically implemented today through a burden-shifting
framework that has been developed by the lower courts in agreement cases
alleging collusive effects.87 A plaintiff must satisfy an initial burden of production by demonstrating that competition has been or likely will be harmed.88
If the plaintiff makes a satisfactory initial showing, the burden of production
shifts to defendants to identify a plausible business justification. If defendant
does so, the plaintiff, on whom the burden of persuasion rests, must prove
unreasonableness by showing that the harm to competition is not dissipated or
eliminated by the benefit to competition,89 or that defendant had a practical
less-restrictive alternative for achieving the benefits with less harm to
competition.90
The burden-shifting framework implies that the rule of reason review of
allegedly collusive horizontal agreements can be truncated relative to the way
a court would proceed under the comprehensive rule of reason in two senses.91
evidence can be contested—in this example, perhaps, with evidence that non-excluded firms
experienced an independent increase in marginal cost of sufficient magnitude to explain the price
increase.)
87 See, e.g., PolyGram Holding, 416 F.3d at 36 (D.C. Cir. 2005); Law v. NCAA, 134 F.3d
1010, 1019 (10th Cir. 1998); see also Andrew I. Gavil, Burden of Proof in U.S. Antitrust Law, in
1 ISSUES IN COMPETITION LAW AND POLICY, supra note 52, at 125, 145–48; Gavil, supra note 82,
at 758–60 (discussing burden shifting and the rule of reason).
88 The plaintiff may meet this burden with any of the limited factual showings of harm to
competition that would provide a basis for truncated or quick look condemnation: that the agreement falls in a traditional per se category, that harm is intuitively obvious, or that harm has
already occurred (actual effects evidence). Because the plaintiff also has the option of proving
unreasonableness through a comprehensive rule of reason review, the plaintiff can also satisfy its
initial burden with a more detailed demonstration of harm to competition based on an analysis of
a wider range factors such as defendant market power or the actual effects of the agreement as
implemented—in which case the plaintiff’s initial burden of production would merge with its
ultimate burden of persuasion. In practical application under Sherman Act Section 1, most plaintiffs have failed to satisfy their initial burden. See Michael A. Carrier, The Real Rule of Reason:
Bridging the Disconnect, 1999 BYU L. REV. 1265, 1293 [hereinafter Bridging the Disconnect];
Michael A. Carrier, The Rule of Reason: An Empirical Update for the 21st Century, 16 GEO.
MASON L. REV. 827, 831–32 (2009) [hereinafter Empirical Update] .
89 Courts routinely describe the unstructured reasonableness inquiry in terms of balancing benefits and harms, but in practice they almost never actually balance. See Carrier, Bridging the
Disconnect, supra note 88, at 1293; Carrier, Empirical Update, supra note 88, at 831–32. Accordingly, following a suggestion of Prof. Andrew Gavil, in this article I describe reasonableness
review as evaluating whether the benefits “dissipate or eliminate” the harms rather than as “balancing” or “weighing” harms against benefits. If a court were to permit efficiency benefits in one
market to justify conduct that harmed competition in a different market, however, it would be
difficult to interpret that process other than as balancing.
90 For one court’s statement of this framework, see Law v. NCAA, 134 F.3d at 1019; and see
also Gregory v. Fort Bridger Rendezvous Association, 448 F.3d 1195, 1205 (10th Cir. 2006)
(reaffirming Law framework). For a collection of cases, see 1 ANTITRUST LAW DEVELOPMENTS,
supra note 36, at 62 n.353.
91 This article uses the phrases “comprehensive rule of reason,” “unstructured rule of reason,”
and “full blown rule of reason” interchangeably to refer to the type of wide-ranging analysis
undertaken in Board of Trade. See generally Bd. of Trade of City of Chicago v. United States,
246 U.S. 231 (1918).
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First, a plaintiff may satisfy its initial burden without undertaking a detailed
market analysis (which would require defining markets, analyzing market
shares, evaluating entry conditions, and the like) by relying instead upon categorization of the agreement, facial analysis of the agreement, or actual effects
evidence. In addition, harm to competition may be inferred from the limited
showing required to satisfy the plaintiff’s initial burden combined with the
absence of plausible efficiencies, without need for further analysis.
The courts appear to be developing a structured approach for evaluating
anticompetitive exclusion that is similar to the approach they apply to evaluate anticompetitive collusion. As with alleged collusive harms, allegations of
anticompetitive exclusion are generally tested under the rule of reason across
doctrinal categories.92 Exclusive dealing allegations are evaluated for their
reasonableness, whether challenged under the Sherman Act or the Clayton
Act.93 Vertical agreements, which could result in exclusion, are reviewed
under the rule of reason regardless of whether they involve price or non-price
terms.94 Tying and exclusionary group boycotts are evaluated under the rule of
reason if a per se rule does not apply.95 The exclusionary conduct element of
the monopolization offense is reviewed in a burden-shifting framework similar to the approach now applied to evaluate the reasonableness of conduct
under Sherman Act Section 1.96
92 Many economic factors relevant to showing that exclusion and collusion have harmed competition, discussed below in Parts III and IV, would be relevant when applying the unstructured
rule of reason, but they would not all be relevant if the reasonableness review is truncated.
93 Jefferson Parish Hosp. Dist. No. 2 v. Hyde, 466 U.S. 2, 44–45 (1984) (O’Connor, J, concurring) (Sherman Act); Omega Envtl., Inc. v. Gilbarco, Inc., 127 F.3d 1157, 1162 (9th Cir. 1997)
(Clayton Act); U.S. Healthcare, Inc. v. Healthsource, Inc., 986 F.2d 589, 593 (1st Cir. 1993)
(Sherman Act); see Jacobson, supra note 80, at 363 (noting that exclusive dealing analysis has
been “freed . . . to conform to more general analysis of trade restraints under the rule of reason”).
94 Leegin Creative Leather Prods., Inc. v. PSKS, Inc., 551 U.S. 877 (2007) (resale price maintenance); Cont’l T.V., Inc. v. GTE Sylvania Inc., 433 U.S. 36 (1977) (non-price restraints).
95 Jefferson Parish, 466 U.S. at 29 (tying); United States v. Microsoft Corp., 253 F.3d 34, 84
(D.C. Cir. 2001) (tying); see Nw. Wholesale Stationers, Inc. v. Pac. Stationery & Printing Co.,
472 U.S. 284, 297 (1985) (exclusionary group boycott); United States v. Visa U.S.A., Inc., 344
F.3d 229 (2d Cir. 2003) (analyzing conduct tantamount to an exclusionary group boycott under
the rule of reason).
96 Compare Microsoft, 253 F.3d at 58–59, with PolyGram Holding, Inc. v. FTC, 416 F.3d 29
(D.C. Cir. 2005), and Law v. NCAA, 134 F.3d 1010 (10th Cir. 1998). Cf. United States v.
Standard Oil Co., 221 U.S. 1, 61–62 (1911) (noting that the rule of reason applies to the analysis
of conduct under both Sherman Act Section 1 and Sherman Act Section 2). The reasonableness
analysis of monopolization is structured further when price-cutting is the alleged exclusionary
act, as predatory pricing requires proof of below-cost pricing and an assessment of the pricecutter’s prospects for recouping the costs of below-cost pricing through the later exercise of
monopoly power. See Brooke Grp. Ltd. v. Brown & Williamson Tobacco Corp., 509 U.S. 209
(1993) (applying Sherman Act principles to Robinson-Patman Act decision). The recoupment
inquiry can be understood as assessing the profitability of the alleged anticompetitive strategy,
and thus evaluating whether the excluding firms can solve the third “exclusion problem” discussed below in Part IV.
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The courts have also arguably begun to develop an approach for truncating
the rule of reason review of exclusionary conduct across legal categories,
much as they have come to do with collusive horizontal agreements. Synthesizing the leading cases, exclusionary conduct may be found unreasonable
today without a comprehensive analysis of the nature, history, purpose, and
actual or probable effect of the practice in the presence of two additional elements: (i) if the excluding firms have foreclosed competition from all actual
or potential rivals other than insignificant competitors,97 and (ii) if the exclusionary conduct lacks a plausible efficiency justification.98 The need to identify the excluding firms’ rivals may call for at least an informal market
definition,99 but this predicate would not undermine the benefits of truncation
in reducing transaction costs and providing guidance when market definition
is not difficult,100 and may not fully undermine those benefits even if market
97 Aspen Skiing v. Aspen Highlands Skiing Corp., 472 U.S. 585 (1985) (discussing a dominant firm that excluded its only competitor); Microsoft, 253 F.3d at 55 (noting that exclusionary
conduct protected the “applications barrier to entry” that insulated the dominant firm from competition from current and potential rivals); United States v. Dentsply Int’l., Inc., 399 F.3d 181 (3d
Cir. 2005) (discussing a dominant firm that foreclosed its rivals from access to dealers, and
noting that while this exclusionary method did not cover two small rivals that sold directly to the
ultimate customers, their alternative method of distribution was less effective). In Lorain Journal
Co. v. United States, 342 U.S. 143 (1951), the dominant daily newspaper excluded a rival radio
station from the advertising market but did not exclude another competitor, a weekly newspaper.
The Supreme Court and the district court appear to have treated the small weekly newspaper as
an insignificant market participant, in which case the exclusionary conduct foreclosed only the
sole significant rival, but these decisions could instead be read to have defined the market narrowly to exclude that firm as a participant. United States v. Lorain Journal Co., 92 F. Supp. 794,
796–97 (N.D. Ohio 1950), aff’d, 342 U.S. 143 (1951).
98 See United States v. Visa U.S.A., Inc., 344 F.3d 229 (2d Cir. 2003) (government prevailed
by showing harm to competition and the absence of procompetitive benefits, though the inquiry
into competitive harm was wide-ranging); Gavil, supra note 14, at 27–28 (noting that plaintiffs
are most likely to succeed in proving exclusionary violations under Sherman Act Section 2 when
the harm to competition or defendant’s market power are obvious and the defendant lacks a
plausible business justification); see also Mark S. Popofsky, Defining Exclusionary Conduct:
Section 2, the Rule of Reason, and the Unifying Principle Underlying Antitrust Rules, 73 ANTITRUST L.J. 435, 445 (2006) (the Microsoft framework for evaluating exclusionary conduct under
Sherman Act Section 2 “is virtually indistinguishable from the test courts employ under Section
1’s rule of reason”).
99 See Republic Tobacco Co. v. N. Atlantic Trading Co., 381 F. 3d 717, 737 (7th Cir. 2004)
(noting that the approximate magnitude of market shares may be assessed after proving the
“rough contours” of a market). By contrast, the second element in the truncated reasonableness
review of collusive conduct does not require market definition. If truncated condemnation of
exclusionary conduct is instead based on actual evidence of anticompetitive effect—an open
possibility, see infra notes 129–31 and accompanying text—market definition would presumably
not be required.
100 Market definition appears to have been uncontroversial in a number of pro-plaintiff exclusion decisions. See, e.g., Lorain Journal, 342 U.S. 143 (mass dissemination of news and advertising, both of a local and national character, in Lorain, Ohio); Dentsply, 399 F.3d 181 (sale of
prefabricated artificial teeth in the United States); Conwood Co. v. U.S. Tobacco Co., 290 F.3d
768 (6th Cir. 2002) (moist snuff in the United States).
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definition is strongly contested.101 Moreover, it may not be necessary to identify with specificity every significant foreclosed rival to determine that all
such rivals were excluded.102
The D.C. Circuit’s analysis of monopolization in its en banc Microsoft decision provides the most detailed articulation of this approach.103 The monopolization offense has two doctrinal elements: monopoly power and
exclusionary conduct (acquiring or maintaining that power through anticompetitive means).104 To identify the second element, exclusionary conduct, the
circuit court adopted a burden-shifting framework consistent with “a century
of case law on monopolization[.]”105 Under its scheme, plaintiff initially establishes a prima facie case by demonstrating anticompetitive effect.106 If plaintiff
successfully does so, the defendant may proffer a non-pretextual procompetitive justification for its conduct, which shifts the burden back to the plaintiff
to rebut that claim.107 If the justification stands unrebutted, the plaintiff must
demonstrate that the anticompetitive harm of the conduct outweighs the
procompetitive benefit.108 In applying this framework, proof that the monopolist has foreclosed all actual or potential rivals would undoubtedly be sufficient to establish plaintiff’s prima facie case,109 after which defendant’s
inability to identify a plausible efficiency justification would suffice to prove
that the conduct is exclusionary and thus to condemn it as a violation of Sherman Act Section 2.
Truncated condemnation on a similar basis appears possible across most if
not all of the disparate legal categories in which exclusionary conduct allegations may be evaluated, including attempt to monopolize,110 monopoliza101 Problems that arise in defining markets in exclusion settings are discussed in Jonathan B.
Baker, Market Definition: An Analytical Overview, 74 ANTITRUST L.J. 129, 166–73 (2007).
102 Applications of Comcast Corporation, General Electric Company, and NBC Universal, Inc.,
for Consent to Assign Licenses and Transfer Control of Licensees, Memorandum Opinion and
Order, 26 FCC Rcd. 48 (2011), available at transition.fcc.gov/FCC-11-4.pdf; see also United
States v. Microsoft Corp., 253 F.3d 34, 79–80 (D.C. Cir. 2001) (inferring causal link between
defendant’s anticompetitive conduct and maintenance of its monopoly from the exclusion of
nascent competitive threats, but not identifying each excluded potential rival).
103 See Microsoft, 253 F.3d at 78–80.
104 United States v. Grinnell Corp., 384 U.S. 563, 570–71 (1966). Microsoft describes the second element as “exclusionary conduct.” Microsoft, 253 F.3d at 58.
105 Microsoft, 253 F.3d at 58.
106 Id. at 58–59.
107 Id. at 59.
108 Id.
109 Market definition may be the predicate for identifying rivals. See supra notes 99–102 and
accompanying text. In Microsoft, the court identified a market in the context of evaluating the
monopoly power element of the monopolization offense. See Microsoft, 253 F.3d at 50–56.
110 See Lorain Journal Co. v. United States, 342 U.S. 143 (1951) (dominant daily newspaper
excluded rival radio station from advertising market). Neither the Supreme Court nor the district
court made clear whether advertising competition from a small weekly newspaper in the same
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tion,111 exclusionary group boycott,112 non-price vertical restraints,113 and
exclusive dealing.114 The case law establishing the truncated approach to reasonableness review of exclusionary conduct does so more clearly for monopolization, the legal category addressed by Microsoft’s burden-shifting
framework, than for violations that would fall in other legal categories. For
this reason, the cases could be read as establishing a burden-shifting approach
to truncation only for the review of monopolization allegations. That narrow
reading would be inconsistent with the broad trend in antitrust elevating concepts over categories discussed above in Part I.115 Hence, modern courts
would likely look across doctrinal pigeonholes for guidance in evaluating exclusionary conduct claims, and adopt a common framework for doing so.
The specifics of the structured approach are less evident in the exclusion
context than the collusive one because many more collusion cases have been
condemned after truncated review than exclusion cases.116 It is nevertheless
city was ruled out by defining the market to exclude that firm as a participant—in which case the
exclusionary conduct at issue foreclosed competition from all rivals—or whether it treated that
firm as an insignificant market participant, in which case the exclusionary conduct foreclosed
only the sole significant rival. United States v. Lorain Journal Co., 92 F. Supp. 794, 796–97 (N.
D. Ohio 1950), aff’d, 342 U.S. 143 (1951).
111 Aspen Skiing v. Aspen Highlands Skiing Corp., 472 U.S. 585 (1985); Microsoft, 253 F.3d
at 64–78. Cf. Jonathan B. Baker, Promoting Innovation Competition Though the Aspen/Kodak
Rule, 7 GEO. MASON L. REV. 495, 496 (1999) (explaining that the Supreme Court had established a truncated legal rule finding a violation of Sherman Act Section 2 when a monopolist
excludes rivals by restricting a complementary or collaborative relationship without an adequate
business justification).
112 See Nw. Wholesale Stationers, Inc. v. Pac. Stationery & Printing Co., 472 U.S. 284, 298
(1985) (remanding for review under a legal rule creating the possibility of truncated condemnation). The Stationers Court used the term “per se rule,” but, in contrast to the traditional per se
rules employed in the analysis of horizontal restraints, conditioned application of its rule on up to
three elements including defendant market power. See supra note 78. For this reason, its approach is better thought of as describing a truncated or structured inquiry. Accord, Toys “R” Us,
Inc. v. FTC, 221 F.3d 928, 936 (7th Cir. 2000).
113 See Graphic Prods. Distribs., Inc. v. ITEK Corp., 717 F.2d 1560, 1583 (11th Cir. 1983)
(affirming jury verdict for plaintiff upon proof of defendant market power absent evidence that
the restraints were reasonably necessary to achieve a legitimate business purpose); Eiberger v.
Sony Corp., 622 F.2d 1068 (2d Cir. 1980) (affirming unjustified exclusion condemned without
further inquiry into defendant market power); Gavil, supra note 14, at 8 n.29 (“[Continental T.V.,
Inc. v. GTE Sylvania Inc., 433 U.S. 36 (1977),] strongly implies that if a plaintiff can demonstrate that its supplier possesses market power, the burden of production should shift to the
defendant to justify its conduct.”). Although non-price vertical restraints can be subject to truncated condemnation, rule of reason litigation of such agreements almost always ends with defendant prevailing. See HOVENKAMP, supra note 36, § 11.6b; ANTITRUST LAW IN PERSPECTIVE,
supra note 25, at 369 (Sidebar 4-1: Dealer Relations After Sylvania).
114 Cf. United States v. Dentsply Int’l, Inc., 399 F.3d 181 (3d Cir. 2005) (analyzing exclusive
dealing conduct as monopolization).
115 See supra notes 25–27 and accompanying text.
116 The small number of recent exclusion decisions consistent with the synthesized rule does
not mean that there is no such rule; it more likely shows that there are fewer litigated exclusionary conduct claims than collusive conduct claims in the first place, or that the conduct in such
cases is less frequently justified with a plausible efficiency claim. The enforcement agencies
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evident from the synthesized rule that as the legal rules governing exclusion
and collusion evolve, they are converging on an approach that is more likely
to find unlawful conduct lacking a plausible efficiency justification, regardless
of whether the anticompetitive effects are exclusionary or collusive—thus
demonstrating that antitrust’s doctrinal rules evaluate collusion and exclusion
in a similar way, and do not tilt the scales to downplay exclusion.
C. REFINING
THE
TRUNCATED RULE GOVERNING EXCLUSION
The courts have not explicated as doctrine the synthesized rule for truncating the reasonableness review of exclusionary conduct set forth above.117 In
consequence, many questions about truncated condemnation of exclusionary
conduct remain open for future refinement, including the following six.118
First, if some rivals are not excluded, what showing is required to demonstrate their competitive insignificance? As an economic matter, a firm or firms
would be insignificant for this purpose if, given the cost and difficulty of
output expansion, it or they (collectively) would not increase sales sufficiently
to undermine the post-exclusion exercise of market power. Courts that have
treated non-excluded firms as insignificant have not experienced difficulty
concluding that they have high costs of output expansion or low market
shares,119 but these factual determinations will not always be easy to make.120
more frequently challenge naked collusion than plain exclusion. See infra note 237 and accompanying text (discussing relative frequency of exclusion and collusion cases).
117 An earlier work by the present author described a truncated legal rule established by the
Supreme Court in two monopolization decisions: Aspen and Kodak. Aspen Skiing v. Aspen
Highlands Skiing Corp., 472 U.S. 585 (1985); Eastman Kodak Co. v. Image Technical Servs.,
Inc., 504 U.S. 451 (1992); Baker, supra note 111, at 496. Under that rule, Sherman Act Section 2
is violated when a monopolist excludes rivals by restricting a complementary or collaborative
relationship without an adequate business justification. This discussion updates that prior analysis to reflect more recent precedent. Most importantly, a number of questions about the elements
of the rule that seemed open in 1999, see Baker, supra, at 503–05, have been addressed through
the analytical framework set forth in Microsoft, United States v. Microsoft Corp., 253 F.3d 34
(D.C. Cir. 2001) (en banc). The generality of the Microsoft framework also suggests, contrary to
the cautious interpretation of the cases offered in 1999, that truncation does not turn on the
means of exclusion (that is, it would not be limited to exclusionary conduct that takes the form of
a restriction to a prior complementary or collaborative relationship). See id.
118 In addition, it is an open question whether truncated condemnation under the rule of reason
can be applied to exclusionary conduct undertaken by or associated with the creation of joint
research or production ventures, including voluntary standards development organizations, as
these types of joint ventures “shall be judged on the basis of its reasonableness, taking into
account all relevant factors affecting competition . . . .” 15 U.S.C. § 4302.
119 A low market share may indicate competitive insignificance in this context because small
firms often have difficulty expanding output inexpensively, as would be the case if they are small
mainly for reasons other than aggressive competition by the excluding firms. Even if production
costs are low and do not increase with output, for example, the costs of identifying and marketing to new customers often increase as output rises.
120 But see supra note 100 (providing examples from exclusionary conduct cases in which
courts did not find market definition difficult).
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If competitive insignificance is not easily determined, the truncated rule could
lose its administrability advantage over unstructured rule of reason review,
leading a court to prefer not to decide the matter before it on a quick look.
Second, if the excluding firm or firms have market power (most likely
demonstrated through market shares) can a court infer that all significant rivals, actual or potential, have been excluded or likely would be excluded from
evidence that one such rival has been excluded? That is, if the excluding firms
have market power and are able to foreclose one rival, is it reasonable to
presume they have the ability and incentive to foreclose all rivals? The Federal Trade Commission answered this question in the affirmative in a decision
condemning an exclusionary group boycott.121 If its answer is generally accepted, truncated condemnation could be undertaken without identifying
every significant rival and proving that each has been excluded or likely
would be excluded.122 Instead, exclusionary conduct would be condemned
without full rule of reason review on a showing that one or more rivals were
excluded, the excluding firms possess market power, and the exclusionary
conduct at issue had no plausible efficiency justification.
Third, in a prospective exclusion case, if the exclusionary conduct forecloses all actual and potential rivals, and has no business justification, can it
be condemned without proof that the excluding firms previously had market
power—particularly regardless of the excluding firm’s market share?123 The
obvious logic of the inference created by the synthesized rule set forth
121 Toys “R” Us, Inc., 126 F.T.C. 415, 590–608 (1998), aff’d, 221 F.3d 928 (7th Cir. 2000); see
Multistate Legal Studies, Inc. v. Harcourt Brace Jovanovich Legal and Prof’l Publ’ns, Inc., 63
F.3d 1540, 1549, 1555–56 (10th Cir. 1995) (explaining that evidence of defendant market power
and entry barriers suggests a triable issue of fact concerning recoupment in a predatory pricing
case). Moreover, if harm to competition can be inferred from proof of market power and the
absence of efficiencies, it is an open question what market share would be sufficient to satisfy the
rule. In Toys, the FTC applied the rule to a firm it found to have a market share of more than 30
percent in the areas in which it did business and between 40 percent and 50 percent in many
cities. Toys, 126 F.T.C. at 597–99. The risk of a false positive—here the risk of wrongly inferring that non-excluded rivals would be unable to counteract the harm to competition by collectively expanding output—may be greater the lower the market share threshold.
122 See Christine A. Varney, A Post-Leegin Approach to Resale Price Maintenance Using a
Structured Rule of Reason, ANTITRUST, Fall 2009, at 22, 24–25 (proposing that a plaintiff proceeding on a manufacturer or retailer exclusion theory of harm from resale price maintenance
can satisfy its prima facie case, thus shifting a burden to defendant to prove efficiencies, by
showing: that defendant has market power, that the resale price maintenance arrangements result
in substantial foreclosure, and that exclusionary effects are plausible); cf. Nw. Wholesale Stationers, Inc. v. Pac. Stationery & Printing Co., 472 U.S. 284 (1985) (truncated condemnation rule
looks only to exclusion, market power, and the absence of efficiencies).
123 Market power in exclusion cases can also be demonstrated by actual effects evidence. E.g.,
Eastman Kodak Co. v. Image Technical Servs., Inc., 504 U.S. 451, 477 (1992) (noting that
market power may be inferred from direct evidence that prices rose and rivals were excluded);
United States v. Microsoft Corp., 253 F.3d 34, 51, 57 (D.C. Cir. 2001) (holding on alternative
grounds of monopoly power); ReMax Int’l, Inc. v. Realty One, Inc., 173 F.3d 995 (6th Cir.
1999); see also Geneva Pharms. Tech. Corp. v. Barr Labs. Inc., 386 F.3d 485, 500 (2d Cir. 2004)
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above—a firm clearly can exercise market power by excluding all its rivals no
matter how small its prior share—implies that proof of pre-existing market
power should be unnecessary for truncated condemnation.124 Moreover, that
outcome is consistent with the rule governing attempted monopolization,
which requires proof of a “dangerous probability” of achieving monopoly
power rather than pre-existing monopoly power,125 and the case law establishing that a monopoly obtained through the fraudulent acquisition of a patent
violates Sherman Act Section 2.126 Given the historical importance of defendant market share in evaluating allegations of anticompetitive exclusion, even
outside of Sherman Act Section 2,127 however, it is possible that a court could
nevertheless require proof of excluding firm market power before truncating
its reasonableness review.128
Fourth, is truncated condemnation available in a retrospective exclusion
case without proof of market power but with a showing of actual anticompetitive effects? This approach would follow the logic of a quick look methodology established in collusive agreement cases,129 and was endorsed for
(showing of adverse effects insufficient on the facts of the case); Tops Mkts., Inc. v. Quality
Mkts., Inc., 142 F.3d 90, 97 (2d Cir. 1998) (same).
124 “A firm that seeks to create a monopoly by dynamiting its competitor’s plants does not need
market power—only a saboteur and a match.” See HOVENKAMP, supra note 36, § 6.5.
125 Spectrum Sports, Inc. v. McQuillan, 506 U.S. 447, 455 (1993). Market shares too low to
prove market power may be sufficient to show “dangerous probability.” 1 ANTITRUST LAW DEVELOPMENTS, supra note 36, at 323.
126 Walker Process Equip. Inc. v. Food Mach. & Chem. Corp., 382 U.S. 172, 173–74 (1965).
To similar effect, suppose a firm manipulates a standard-setting process through deception to
ensure that the standard incorporates its intellectual property, giving it the potential to exercise
market power by asserting intellectual property rights. This showing combined with proof that
the exclusionary conduct has no legitimate business justification would likely be sufficient to
prove harm to competition if there is no practical way to compete without complying with the
standard. See Rambus Inc. v. FTC, 522 F.2d 456, 467–68 (D.C. Cir. 2008) (finding no antitrust
violation because the proof of exclusion was insufficient on the facts of the case); Note, Deception as an Antitrust Violation, 125 HARV. L. REV. 1235, 1251–54 (2011) (advocating rule permitting court to find monopolization when a monopolist’s deceptive act was reasonably capable
of contributing to monopoly power, and to find an agreement to deceive unreasonable if it creates a significant anticompetitive effect).
127 See, e.g., 1 ANTITRUST LAW DEVELOPMENTS, supra note 36, at 216 (“Since the early 1970s,
judicial decisions [in exclusive dealing cases] have established a virtual safe harbor for market
foreclosure of 20 percent or less.”).
128 See Jacobson, supra note 80, at 365 (noting that in the reasonableness analysis of exclusive
dealing within a burden-shifting framework allowing for truncated condemnation, a plaintiff
must prove defendant market power to satisfy its initial burden).
129 FTC v. Ind. Fed’n of Dentists, 476 U.S. 447 (1986); NCAA v. Bd. of Regents of the Univ.
of Okla., 468 U.S 85 (1984).
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anticompetitive exclusion by the Federal Trade Commission,130 but has been
questioned by the Seventh Circuit.131
Fifth, how will the synthesized rule for truncating the reasonableness review of exclusionary conduct be harmonized with the rules establishing below-cost pricing and recoupment as elements of the predatory pricing
offense?132 Truncated condemnation is unlikely to be available in such cases
because one or more of the many competitive justifications for low prices
would typically appear plausible,133 rather than because these elements are
part of the offense. (On similar reasoning. truncated condemnation is also unlikely to be available when the exclusionary conduct involves the introduction
of a (non-sham) product design improvement.)134
Sixth, what business justifications for exclusionary conduct are cognizable?135 For example, can defendants justify exclusionary conduct on the
ground that the opportunity to charge monopoly prices induces the excluding
firms to invest in developing or marketing innovative products or production
processes?136 This argument would seem to be “a defense based on the as130 See, e.g., Toys “R” Us, Inc., 126 F.T.C. 415, 608 (1998), aff’d, 221 F.3d 928 (7th Cir.
2000).
131 In Republic Tobacco Co. v. North Atlantic Trading Co., 381 F. 3d 717, 737–38 (7th Cir.
2004), the Seventh Circuit declined to allow the plaintiff to dispense with market definition by
proffering actual effects evidence in a vertical exclusion case. Although this position had seemingly been rejected by the Supreme Court when previously adopted by the same circuit court, see
Indiana Federation of Dentists, 476 U.S. at 465–66, rev’g 745 F.2d 1124 (7th Cir. 1984), the
appellate court in Republic Tobacco interpreted Indiana Federation of Dentists to require plaintiff to show the “rough contours” of a market and that the defendant commands a substantial
share, Republic Tobacco, 381 F.3d at 737. That Seventh Circuit took a different view of Indiana
Federation of Dentists in an earlier exclusionary group boycott case not discussed in Republic
Tobacco. See Wilk v. AMA, 895 F.2d 352, 360 (7th Cir. 1990) (alternative holding).
132 Brooke Grp. Ltd. v. Brown & Williamson Tobacco Corp., 509 U.S. 209 (1993).
133 See Baker, supra note 46, at 587–89 (surveying procompetitive explanations for prices that
might appear to below costs); see also John E. Lopatka & William H. Page, ‘Obvious’ Consumer
Harm in Antitrust Policy: The Chicago School, the Post-Chicago School and the Courts, in
POST-CHICAGO DEVELOPMENTS IN ANTITRUST LAW, supra note 6, at 129, 132–36 (noting that
courts tend to have sympathy for conduct conferring short-run consumer benefits and hostility
for conduct conferring short-run consumer harm, even when careful economic analysis might
support a decision otherwise).
134 Allied Orthopedic Appliances Inc. v. Tyco Health Care Grp., 592 F.3d 991, 1000 (9th Cir
2010). See generally Alan Devlin & Michael Jacobs, Anticompetitive Innovation and the Quality
of Invention, 27 BERKELEY TECH. L.J. 1 (2012) (discussing the relationship between acts of
invention and antitrust violations).
135 In addition to the cognizability issue highlighted in the text, other issues familiar from other
antitrust contexts may include the treatment of cost savings that benefit sellers but are not passed
through to buyers, and whether or when to count efficiencies that benefit buyers in markets other
than the market in which the harm to competition occurs.
136 To similar effect, one commentator raises the possibility that a monopolist’s exclusion of
rivals from access to one side of its two-sided platform could be justified by its success in
making the platform more effective at attracting buyers on the other side. See Jacobson, supra
note 80, at 361 (“[O]ne can imagine a nonfrivolous (albeit weak) argument on behalf of the
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sumption that competition itself is unreasonable,” and thus ruled out by the
holding of National Society of Professional Engineers,137 but dicta in Trinko
might appear to call that conclusion into question.138
In a general sense, the truncated rule of law explicated above allows condemnation of exclusion as anticompetitive without comprehensive reasonableness upon a showing of three elements: (a) exclusionary conduct, (b) facts
suggesting the likelihood of harm to competition; and (c) the absence of a
plausible efficiency justification for the exclusionary conduct. The second element would be satisfied by the exclusion of all actual and potential rivals
(other than insignificant ones); the open questions raise the possibility that it
may also be satisfied in other ways, particularly by excluding-firm market
power combined with the ability to foreclose at least one rival, or by actual
anticompetitive effects.
Describing the truncated rule for exclusion this way emphasizes its structural similarity to the truncated rule for horizontal restraints applied to collusion, which, as previously discussed,139 establishes a violation on a showing of
three similar general elements: (a) an agreement among rivals, (b) facts suggesting the likelihood of harm to competition; and (c) the absence of a plausible efficiency justification for the agreement. If the predicates for quick look
condemnation are not satisfied, the conduct is subject to unstructured rule of
reason review in each case. As a formal matter, therefore, antitrust’s doctrinal
rules treat plain exclusion and naked collusion comparably; they do not confer
a more relaxed scrutiny on exclusionary conduct.
The structured doctrinal rules for exclusion and collusion both require the
absence of a plausible efficiency justification as a predicate for truncated condemnation, but the rules differ in their first two elements. Their initial elements are obviously not the same: the exclusion rule is predicated on
exclusionary conduct while the collusion rule is predicated on collusive conduct.140 As will be examined in detail in Part IV, moreover, the rules also
differ in their second element. The facts suggesting that the collusive conduct
is anticompetitive, such as price fixing or market division, differ from the
Lorain Journal that the value of the newspaper as an advertising medium might be diluted if the
same messages were available elsewhere.”).
137 Nat’l Soc’y of Prof’l Eng’rs v. United States, 435 U.S. 679, 696 (1978).
138 See Verizon Commc’ns Inc. v. Law Offices of Curtis V. Trinko, LLP, 540 U.S. 398, 407
(2004) (“The opportunity to charge monopoly prices—at least for a short period . . . induces risk
taking that produces innovation and economic growth. . . .”).
139 See supra text accompanying notes 82–86.
140 The first step could have been stated more broadly and in economic language as requiring
coordinated conduct rather than the more narrow concept of agreement among rivals, but, as
discussed supra note 83, antitrust law has only limited experience in identifying collusive effects
from unilateral conduct or vertical agreements and the modern case law as yet offers little guidance on how to do so.
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facts suggesting that the exclusionary conduct is anticompetitive, such as excluding all actual or potential rivals. Yet, as I will explain in Part IV, this
difference also does not undermine the formal parallelism between the truncated rules. Rather, the second step operates similarly in both contexts by
obviating the need to demonstrate the specific mechanisms by which defendants solve the economic problems of making exclusion or collusion work.
Those mechanisms are described in the next Part, which identifies the economic relationship between exclusion and collusion.
III. THE ECONOMICS OF ANTICOMPETITIVE EXCLUSION
The harm to competition that arises from exclusion and collusion can be
understood within a common economic framework. Indeed, the economic reasons for concern about anticompetitive collusion are substantially the same as
the reasons for concern about anticompetitive exclusion.
A. VOLUNTARY
AND
INVOLUNTARY CARTELS
To see the economic relationship between exclusion and collusion as means
of exercising market power, consider a hypothetical soft drink industry with
three participants: Coke, Pepsi, and Royal Crown (RC). One can imagine
these three rivals reaching an express or tacit (horizontal) agreement to act
collectively as though they were a monopolist, reducing industry output in
order to raise price above the competitive level.141 This outcome could be
termed, for reasons that will become clear, a “voluntary” cartel.
Suppose instead that RC does not want to participate in the voluntary cartel.
It would prefer to compete rather than to cooperate. In the merger context, one
might describe RC as a “maverick” and be concerned that a merger of RC
with Coke or Pepsi would lead to coordinated competitive effects.142 More
generally, if RC would not go along voluntarily with the cartel that Coke and
Pepsi want to create, then Coke and Pepsi could make it go along by raising
RC’s costs or by making it more difficult for RC to reach customers.143 With
141 This discussion adopts the convention common in the economics literature of describing
competitive harms in terms of increased prices and a reduction in output. This framework encompasses a wider range of harms than may be apparent. It includes reductions in product quality, which can be understood as increases in the quality-adjusted price. It may also account for
reductions in the rate of innovation, as conduct that reduces competition also tends to discourage
innovation. See generally Jonathan B. Baker, Beyond Schumpeter vs. Arrow: How Antitrust Fosters Innovation, 74 ANTITRUST L.J. 575, 579 (2007); Carl Shapiro, Competition and Innovation:
Did Arrow Hit the Bull’s Eye?, in THE RATE AND DIRECTION OF INVENTIVE ACTIVITY REVISITED
361 (Josh Lerner & Scott Stern eds., 2012).
142 See, e.g., Jonathan B. Baker, Mavericks, Mergers and Exclusion: Proving Coordinated
Competitive Effects Under the Antitrust Laws, 77 N.Y.U. L. REV. 135, 140 (2002).
143 If RC is a prospective entrant, Coke may consider a broader range of exclusionary strategies
than would be available if RC is an incumbent firm. In addition to raising RC’s post-entry marginal costs of production and distribution, Coke could also deter RC’s entry by making it necessary
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higher costs of production or distribution, RC would be forced to cut back its
output and raise price, and so permit Coke and Pepsi to reduce their output
and raise their prices without fear that aggressive competition by RC would
undermine their collusive efforts. The upshot is that all three firms would
reduce output and raise price, similarly to what would happen if RC went
along voluntarily with Coke’s and Pepsi’s efforts to collude.144 Because RC is
coerced into participating through the exclusionary conduct of Coke and
Pepsi, this outcome can be understood as an “involuntary” (or coerced)
cartel.145
The “involuntary cartel” terminology is a less natural way of describing the
outcome if Coke is a dominant firm (no Pepsi) and RC is forced to exit or
deterred from entry, as anticompetitive exclusion under such circumstances
would result in the creation of a literal monopolist.146 Even in this limiting
case, though, the “involuntary cartel” terminology appropriately captures the
way the excluding firm forces the excluded rival to do what a cartel participant does voluntarily: avoid aggressive competition. The terminology captures the common adverse economic effect of collusion and exclusion, and
focuses attention on it.
As the soft drink example demonstrates and the “involuntary cartel” terminology highlights, exclusion and collusion are complementary methods of obtaining market power.147 It does not matter to buyers whether the cartel is
for RC to make greater sunk investments in order to enter or by credibly committing to increase
the post-entry competition that RC expects to face. See supra note 75. (The latter strategies can
still be interpreted as raising RC’s marginal costs on the view that a prospective entrant’s marginal decision includes whether to enter, not just how much to produce conditional on entry.)
144 The possibility that competition could be harmed through exclusionary conduct has been
well established in the economics literature for decades. E.g., Richard R. Nelson, Increased
Rents from Increased Costs: A Paradox of Value Theory, 65 J. POL. ECON. 387 (1957); Steven C.
Salop & David T. Scheffman, Cost-Raising Strategies, 36 J. INDUS. ECON. 19 (1987); Oliver E.
Williamson, Wage Rates as a Barrier to Entry; The Pennington Case in Perspective, 82 Q.J.
ECON. 85 (1968).
145 Alternatively, the collusive anticompetitve effects could be described as direct and the exclusionary effects described as indirect. ANTITRUST LAW IN PERSPECTIVE, supra note 25, at
45–49.
146 The “involuntary cartel” terminology also may mislead if Coke is a dominant firm to the
extent it (incorrectly) suggests that excluding firms must solve “cartel problems” in order for
exclusion to succeed in that case.
147 Cf. Aaron Edlin & Joseph Farrell, Freedom to Trade and the Competitive Process (Nat’l
Bureau of Econ. Research, Working Paper No. 16818, 2011), available at http://ssrn.com/ab
stract=1761581 (collusion and exclusion both harm competition by hindering the process through
which buyers and sellers undertake potentially beneficial trades and thereby form improving
coalitions). But see Thomas G. Krattenmaker, Robert H. Lande & Steven C. Salop, Monopoly
Power and Market Power in Antitrust Law, 76 GEO. L.J. 241, 249 (1987) (distinguishing
“Stiglerian” (collusive) market power and “Bainian” (exclusionary) market power).
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voluntary or involuntary; either way, the same firms collectively reduce output and the price that buyers pay increases.148
Exclusion and collusion are also closely related in a second way: they are
often and naturally combined by firms exercising market power.149 Colluding
firms may need to exclude in order for their collusive arrangement to succeed.150 They may find it necessary to deter a cheating member through exclusionary conduct, or to exclude fringe rivals or new entrants in order to prevent
new competition from undermining their collusive arrangement.151 For example, the European Commission found that a citric acid cartel threatened dumping actions against Chinese firms not participating in their collusive
arrangement and targeted price cutting at the customers of the Chinese producers to deter those rivals from undermining the cartel.152 Indeed, a recent
study of multiple cartels found that many “use[ ] exclusionary behavior often
featured in monopolization cases to ensure the effectiveness of [their] efforts
to restrict output.”153 Similarly, excluding firms may need to collude in order
to exclude successfully154 or to profit collectively from exclusionary
conduct.155
148 In a homogeneous product market, moreover, the exercise of market power reduces industry
output, regardless of whether the practice is collusive or exclusionary.
149 This discussion illustrates the way that exclusion and collusion permit the firms participating in a market to exercise market power within that market. It does not address the potential
competitive consequences of monopoly leveraging (the exploitation of market power in one market to create market power in another market), except insofar as entry into a complementary
market would facilitate entry into the market served by the excluding or colluding firms, and the
excluding or colluding firms can maintain their market power in the primary market by foreclosing entry by new competitors seeking to sell the complementary product.
150 See ANTITRUST LAW IN PERSPECTIVE, supra note 25, at 235–47 (colluding firms must solve
three “cartel problems,” which include preventing new competition, for their arrangement to
succeed).
151 See JTC Petroleum Co. v. Piasa Motor Fuels, Inc., 190 F.3d 775, 778 (7th Cir. 1999) (Posner, C.J.) (“JTC, a maverick, was a threat to the cartel—but only if it could find a source of
supply . . . .”); see generally Baker, supra note 142, at 188–97. Exclusionary conduct may be
necessary for coordination among rivals to succeed, regardless of whether the coordination itself
can be challenged as an illegal agreement.
152 Case COMP/E-1/36.604—Citric Acid, Comm’n Decision, 2002 O.J. (L 239) 18, ¶¶ 116,
119, 166.
153 Randal D. Heeb, William E. Kovacic, Robert C. Marshall & Leslie M. Marx, Cartels as
Two-Stage Mechanisms: Implications for the Analysis of Dominant-Firm Conduct, 10 CHI. J.
INT’L L. 213, 217 (2009).
154 See Nw. Wholesale Stationers, Inc. v. Pac. Stationery & Printing Co., 472 U.S. 284, 290–91
(1985) (alleging agreement among rivals to exclude a competitor); see also Hemphill & Wu,
supra note 53.
155 See Brooke Grp. Ltd. v. Brown & Williamson Tobacco Corp., 509 U.S. 209, 226–27 (1993)
(rejecting predatory pricing claim in part because facts did not support oligopoly recoupment
theory).
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B. EXCLUSION
AND
559
ECONOMIC GROWTH
The parallel between voluntary and involuntary cartels provides an economic basis for treating exclusion and collusion as comparably serious antitrust offenses. Indeed, anticompetitive exclusion may be the more important
problem because of the particular threat exclusion poses to economic growth.
When antitrust cases address the suppression of new technologies, products, or business models, the disputes are almost always framed as exclusionary conduct allegations.156 For example, Microsoft was found to have harmed
competition in personal computer operating systems by impeding the development of a new method by which applications software could access operating
systems, involving the combination of Netscape’s browser and Sun’s Java
programming language.157 The D.C. Circuit explained that “it would be inimical to the purpose of the Sherman Act to allow monopolists free rein to squash
nascent, albeit unproven, competitors at will—particularly in industries
marked by rapid technological advance and frequent paradigm shifts.”158
Similarly, much of the relief accepted by the Justice Department and the
Federal Communications Commission in their concurrent reviews of Comcast’s acquisition of NBC Universal programming aimed to protect the development of nascent competition from a new technology, online video
distribution, and new business models that could threaten Comcast’s market
power in cable television.159 Exclusionary conduct inhibiting price competition may also harm innovation competition in the same market, as with the
156 See Tim Wu, Taking Innovation Seriously: Antitrust Enforcement if Innovation Mattered
Most, 78 ANTITRUST L.J. 313, 316 (2012) (“[I]f innovation mattered most . . . . [antitrust] enforcement would be primarily concerned with the exclusion of competitors.”). But see United
States v. Automobile Mfrs. Ass’n, 307 F. Supp. 617, 620–21 (C.D. Cal. 1969) (discussing consent decree settling allegations of conspiracy to suppress automotive pollution control research
and development); Michelle Goeree & Eric Helland, Do Research Joint Ventures Serve a Collusive Function? 5–6 (Institute for Empirical Research in Economics Working Paper No. 1424059, 2012), available at http://www.iew.uzh.ch/wp/iewwp448.pdf (providing empirical evidence
that research joint ventures among rivals may facilitate collusion). For this purpose, cases alleging conspiracies to exclude firms adopting new technologies, as through group boycott or predatory pricing, are counted as exclusionary. See, e.g., Fair Allocation System, Inc., 63 Fed. Reg.
43,182 (FTC Aug. 12, 1998) (consent order settling charges that automobile dealers conspired to
induce auto manufacturer to foreclosure rival dealer marketing on the Internet).
157 United States v. Microsoft Corp., 253 F.3d 34 (D.C. Cir. 2001).
158 Id. at 79.
159 Applications of Comcast Corporation, General Electric Company, and NBC Universal, Inc.,
For Consent to Assign Licenses and Transfer Control of Licensees, Memorandum Opinion and
Order, 26 FCC Rcd. 48 (2011), available at transition.fcc.gov/FCC-11-4.pdf; see Competitive
Impact Statement, United States v. Comcast Corp., No. 1:11-cv-00106 (D.D.C. Jan. 18, 2011),
available at http://www.justice.gov/atr/cases/f266100/266158.pdf. The transaction took the form
of a joint venture between Comcast and the previous owner of the programming, General Electric, but was treated as an acquisition because Comcast controlled the joint venture and had the
option to buy out General Electric.
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“exclusionary rules” adopted by MasterCard and Visa to prevent member
banks from issuing American Express or Discover Cards.160
The anticompetitive exclusion of new technologies is not just a modern
problem. Six decades ago, the newspaper monopolist in Lorain Journal impeded the entry of a rival using a new technology, radio.161 Had the newspaper
succeeded, and other newspapers followed suit,162 it is easy to imagine that
few radio stations in regions with a dominant newspaper would have succeeded unless they were owned by the newspaper, slowing the growth of the
radio industry.
These prominent examples make clear that antitrust is an “inclusive” economic institution that supports economic growth and prosperity by preventing
successful incumbent firms and industries from erecting barriers to the entry
of rivals with lower costs, superior production technologies, or better products.163 The main innovation-related argument otherwise does not question the
benefits of economic growth, whether in individual industries164 or to society
160 United States v. Visa U.S.A., Inc., 344 F.3d 229, 241 (2d Cir. 2003) (upholding district
court findings that exclusionary conduct stunted price competition and denied consumer access
to products with new features, and that absent the exclusionary conduct, price competition and
innovation in services would be enhanced).
161 Lorain Journal Co. v. United States, 342 U.S. 143 (1951).
162 See Kansas City Star v. United States, 240 F.2d 643 (1957) (news and advertising monopolist owned multiple newspapers and radio and television broadcasting stations in the Kansas City
region).
163 See DARON ACEMOGLU & JAMES A. ROBINSON, WHY NATIONS FAIL 38–40 (2012) (contrasting the growth-promoting economic institutions in the United States with the growth-inhibiting ones in Mexico by comparing Bill Gates, whose technologically innovative company was
prevented from abusing its monopoly by U.S. antitrust enforcers, with Carlos Slim, whose company was conferred monopoly power and protected from competition by Mexican government
institutions). Acemoglu and Robinson attribute economic growth and prosperity primarily to “inclusive” economic institutions that facilitate entry, investment, and innovation and permit less
efficient firms to be replaced by more efficient ones, id. at 75–79, as opposed to “extractive”
economic institutions that “expropriate the resources of the many, erect entry barriers, and suppress the functioning of markets so that only a few benefit.” Id. at 81. In their view, inclusive
economic institutions are typically supported by “inclusive” political institutions that vest power
in a broad coalition or plurality of political groups rather than in a narrow elite. Id. at 80–81,
86–87; see also STEPHEN L. PARENTE & EDWARD C. PRESCOTT, BARRIERS TO RICHES 1–34
(2000) (attributing differences in living standards across nations importantly to competition-reducing policies within less developed countries, put into place to protect the interests of groups
that benefit from current ways of production, that prevent firms from adopting better production
methods); cf. Edward L. Glaeser, The Political Risks of Fighting Market Failures: Subversion,
Populism and the Government Sponsored Enterprises 8 (Nat’l Bureau of Econ. Research, Working Paper No. 18112, 2012) (“If bargaining across firms is difficult, especially when trying to
arrange for large bribes, then competition will lead to less corruption risk than monopoly.”).
164 At the level of individual industries, studies find substantial social gains from new product
introductions. For example, the welfare gain from the introduction of personal computers has
been estimated to equal 2–3 percent of consumption expenditure. Jeremy Greenwood & Karen
A. Kopecky, Measuring the Welfare Gain from Personal Computers, 51 ECON. INQUIRY 336,
336 (2013). Compare Jerry A. Hausman, Valuation of New Goods Under Perfect and Imperfect
Competition, in 58 NBER STUDIES IN INCOME AND WEALTH: THE ECONOMICS OF NEW GOODS
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as a whole;165 both skeptics and advocates of antitrust intervention in exclusionary conduct settings such as monopolization are concerned with the impact of competition policy on growth.166
Instead, those concerned about antitrust enforcement against exclusionary
conduct argue that it could discourage innovation by making it less profitable.
Their economic point is that a greater prospect of post-innovation competition
could reduce the return to innovation.167 But as an argument against antitrust
enforcement, it is incomplete because it does not recognize the importance of
competitive forces—both pre-innovation product market competition and
competition in innovation itself—for fostering innovation and economic
growth.168 Empirical evidence suggests that the latter forces are more impor207, 207–35 (Timothy F. Bresnahan & Robert J. Gordon eds., 1996) (estimating substantial
social welfare gains from the introduction of a differentiated consumer product), with Timothy F.
Bresnahan, The Apple-Cinnamon Cheerios War: Valuing New Goods, Identifying Market
Power, and Economic Measurement (undated unpublished manuscript), http://www.stanford.edu/
~tbres/Unpublished_Papers/hausman%20recomment.pdf (questioning Hausman’s methodology
and conclusion, but not doubting the likelihood of substantial benefits from new products in
high-technology sectors). Moreover, other studies find that the social return to innovation substantially exceeds the private return. See Edwin Mansfield, Microeconomics of Technological
Innovation, in THE POSITIVE SUM STRATEGY: HARNESSING TECHNOLOGY FOR ECONOMIC
GROWTH 307–11 (Ralph Landau & Nathan Rosenberg eds., 1986); Jeffrey M. Bernstein & M.
Ishaq Nadiri, Interindustry R&D Spillovers, Rates of Return, and Production in High-Tech Industries, 78 AM. ECON. REV. 429 (1988); see also Zvi Griliches, The Search for R&D Spillovers,
94 SCANDINAVIAN J. ECON. S29 (1992); Charles I. Jones & John C. Williams, Measuring the
Social Return to R&D, 113 Q.J. ECON. 1119 (1998).
165 See generally J. Bradford DeLong, Cornucopia: The Pace of Economic Growth in the
Twentieth Century (Nat’l Bureau of Econ. Research Working Paper No. 7602, 2000) (highlighting the benefits of economy-wide increases in material wealth and productivity).
166 Compare David S. Evans & Keith N. Hylton, The Lawful Acquisition and Exercise of Monopoly Power and Its Implications for the Objectives of Antitrust, 4 COMPETITION POL’Y INT’L
203, 203 (2008) (arguing that antitrust pays excessive attention to the static harms of monopoly
pricing and insufficient attention to the dynamic benefits of dominant firm innovation), with
Jonathan B. Baker, “Dynamic Competition” Does Not Excuse Monopolization, 4 COMPETITION
POL’Y INT’L 243, 243–45 (2008) (describing innovation benefits of antitrust enforcement against
monopolization).
167 For example, in the model analyzed by Hylton and Lin, antitrust enforcement against the
exclusionary conduct of dominant firms benefits society by lowering post-innovation consumer
prices, but harms society by discouraging innovation. See Keith N. Hylton & Haizhen Lin, Optimal Antitrust Enforcement, Dynamic Competition, and Changing Economic Conditions, 77 ANTITRUST L.J. 247, 255 (2010). The model does not incorporate the dynamic benefits of preinnovation competition in providing an incentive to innovate. See generally Verizon Commc’ns
Inc. v. Law Offices of Curtis V. Trinko, LLP, 540 U.S. 398, 407 (2004) (the prospect of monopoly induces risk-taking and innovation).
168 See generally Baker, supra note 141, at 579; Shapiro, supra note 141; cf. TIM WU, THE
MASTER SWITCH: THE RISE AND FALL OF INFORMATION EMPIRES 308 (2010) (“To grant any
dominant industrial actor the protection of the state, for whatever reason, is to arrest the
Schumpeterian dynamic by which innovation leads to growth, an outcome that is ultimately
never in the public interest.”); Wu, supra note 156, at 320 (“[A]n innovation-centered antitrust
policy must make scrutiny of exclusion of innovators its primary concern and a focus of
resources.”).
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tant on average.169 As an argument against antitrust, the observation also does
not recognize the way antitrust enforcement can target industry settings and
categories of behavior where such enforcement can promote innovation.170
Those settings include antitrust enforcement to foster product market competition in “winner-take-all” or “winner-take-most” industries, industries where
the extent of future competition will be determined mainly by developments
in technology or regulation, and rapidly growing industries171—all features
that frequently characterize high technology sectors.172 In short, antitrust enforcement against exclusionary conduct is important because it fosters economic growth and prosperity, not just because it addresses harms to price
competition similar to those attacked by enforcement against collusive
conduct.
IV. DIFFERENCES BETWEEN EXCLUSION AND COLLUSION
Notwithstanding the broad doctrinal and economic parallels between voluntary and involuntary cartels, anticompetitive collusion and exclusion arise
through different mechanisms. This section explains why those differences do
not mean that that antitrust enforcers or courts should downplay exclusion
relative to collusion. It also shows that the truncated legal rules for exclusion
and collusion operate similarly: by making it unnecessary to demonstrate
some or all elements of the relevant mechanisms.
A. THE ECONOMICS
OF
“EXCLUSION PROBLEMS”
For an exclusionary strategy to succeed, and thus for the excluding firms
successfully to create an involuntary cartel, the excluding firms must solve
three problems: identifying a practical method of exclusion, excluding rivals
sufficient to ensure that competition is harmed, and ensuring profitability of
See Baker, supra note 141, at 583–87; Shapiro, supra note 141.
See Baker, supra note 141, at 589; see also Baker, supra note 166 (describing innovation
benefits of antitrust enforcement against monopolization).
171 See Baker, supra note 141, at 593–98. Policies increasing pre-innovation competition in
these industries—such as monopolization cases or other antitrust enforcement actions— are unlikely to make much difference to the reward to successful innovation—but can increase preinnovation competition in both product markets and in innovation, and thus increase overall
incentives to innovate.
172 Anticompetitive conduct, whether exclusionary or collusive, can occur in rapidly-innovating high-technology industries, as illustrated by recent government enforcement efforts involving
information technology providers. See, e.g., United States v. Microsoft Corp., 253 F.3d 34 (D.C.
Cir. 2001) (exclusion); United States v. Adobe Sys., Inc., No. 1:10-cv-01629 (D.D.C. Mar. 18,
2011) (final judgment), available at http://www.justice.gov/atr/cases/f272300/272393.htm (collusion); United States v. Hynix Semiconductor, Inc., No. CR 05-249 PJH DRAM (N.D. Cal.
May 11, 2005) (plea agreement), available at http://www.justice.gov/atr/cases/f209200/209231.
pdf (collusion); Intel Corp., FTC Docket No. 9341 (Aug. 4, 2010) (decision and order), available
at http://www.ftc.gov/os/adjpro/d9341/100804inteldo.pdf (exclusion).
169
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their exclusionary strategy.173 These three problems—method, sufficiency,
and profitability—may be termed “exclusion problems”174 by analogy to the
“cartel problems” that colluding firms must solve in order for a coordinated
arrangement to succeed.175
First, the excluding firms must be able to identify a method of partially or
fully excluding some or all rivals.176 The possible methods include four economic mechanisms for raising rivals’ marginal input costs described by
Professors Krattenmaker and Salop.177 First, excluding firms may create a
“bottleneck.”178 The excluding firms can do so by purchasing exclusionary
rights from a sufficient number of the lowest cost suppliers to force excluded
rivals to shift to higher cost suppliers or less efficient inputs. The cost increase
leads the excluded rivals to compete less aggressively with the excluding
firms. Second, excluding firms may engage in “real foreclosure.”179 Under this
method, excluding firms purchase exclusionary rights over a substantial fraction of the supply of a key input, and, by withholding that supply, drive up the
market price for the remainder of the input still available to excluded rivals.
Again, higher costs would lead the excluded rivals to compete less aggres173 These exclusion problems were identified by Professors Krattenmaker and Salop in their
seminal survey article on exclusionary conduct in antitrust. See Krattenmaker & Salop, supra
note 9, at 230–49. In that article, Krattenmaker and Salop refer to the first exclusion problem
(method) as “raising rivals’ costs,” id. at 230, to the second problem (sufficiency) as “gaining
power over price,” id. at 242, and to the third exclusion problem as “profitability,” using the
same term employed here, id. at 266. The three exclusion problems set forth in the text also
generalize the three conditions described as necessary for successful exclusion through vertical
agreement set forth in Baker, supra note 74, at 524, which explains that the benefits of the
strategy to the firms undertaking it must exceed its costs (profitability), the excluding firms must
not cheat on each other (an aspect of sufficiency), and the excluded firm must be unable to avoid
the strategy (method).
174 When there are multiple excluding firms, solving the first and second “exclusion problems”
could require coordination among rivals, further illustrating the close connection between collusion and exclusion. See Hemphill & Wu, supra note 53 (discussing the ways excluding firms
solve their “cartel problems”).
175 As is well known, colluding firms must find a way to solve three “cartel problems”: reaching consensus on terms of coordination, deterring cheating on those terms, and preventing new
competition. See ANTITRUST LAW IN PERSPECTIVE, supra note 25, at 235–47. These problems
emerge from the Stiglerian deterrence perspective on coordination (as refined by the economic
literature on oligopoly supergames). See Baker, supra note 25, at 149–69 (describing economics
of coordination). They are not tied to the broader perspective on coordination adopted by the
2010 Horizontal Merger Guidelines. The Guidelines go beyond the Stiglerian perspective by also
recognizing as coordination “parallel accommodating conduct” (high price outcomes that result
from firm conduct that softens competition when firm strategies do not depend on history and
rivals have accommodating reactions). See U.S. Dep’t of Justice & Fed. Trade Comm’n, Horizontal Merger Guidelines § 7 (2010), available at http://www.justice.gov/atr/public/guidelines/
hmg-2010.pdf.
176 Methods arising in the case law are surveyed informally supra Part II.A.
177 See Krattenmaker & Salop, supra note 9, at 234–40.
178 Id. at 234.
179 Id. at 236.
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sively. Third, the excluding firms may act as a “Cartel Ringmaster” by inducing multiple suppliers of a key input to sell to the excluded rivals only on
disadvantageous terms, thereby reducing competition from those rivals.180
Fourth, the excluding firms may create a “Frankenstein Monster.”181 The excluding firms would do so by purchasing exclusionary rights from a number
of suppliers of the key input, thereby increasing the likelihood that the remaining suppliers would successfully collude, expressly or tacitly, to raise
price to the excluded rivals. With higher input prices, the excluded rivals
would once again be led to compete less aggressively.
The economic mechanisms by which excluding firms foreclose their rivals
could work through raising input prices (input foreclosure), as with the four
methods just set forth, but they could also operate by reducing rivals’ access
to the market (customer foreclosure). For example, if the rivals benefit from
scale economies and the excluding firms adopt methods that foreclose the
excluded rivals from access to low cost distribution, the excluding firms may
raise their rivals’ costs by reducing their rivals’ scale.182 Indeed, any economic
mechanism available for input foreclosure is potentially available for customer foreclosure, and vice versa.183
If the excluded firms can inexpensively adopt counterstrategies to avoid or
evade the exclusionary conduct, the excluding firms will be unable to solve
the first exclusion problem, identifying an exclusionary method.184 In the hypothetical soft drink example sketched in Part III.A, if Coke and Pepsi attempt
to exclude RC by denying it access to bottlers, but RC can instead obtain
comparable distribution through beer distributors at little cost penalty,185 the
exclusionary strategy would not be successful.186 Moreover, if the method of
Id. at 238.
Id. at 240.
182 If the excluded rivals must produce and sell at a reduced scale, they may have higher marginal costs. If the excluded rivals can no longer achieve a minimum viable scale, those rivals
would be forced to exit.
183 Some conceptual gymnastics may be required to see the parallel. Consider, for example, an
industry with firms at three levels: input supply, manufacturing, and distribution. Distribution
may more naturally be seen as downstream of manufacturing, but it would not be inappropriate
to view it alternatively as a service purchased by the manufacturer. Hence conduct excluding a
rival from access to distribution could be viewed as input foreclosure as well as customer foreclosure. See also supra note 54.
184 Krattenmaker and Salop analyze rivals’ counterstrategies solely as a profitability issue; here
that issue is also treated as an aspect of the first exclusion problem.
185 This counterstrategy would be unlikely to be available, however, unless beer distributors
can produce bottled products from concentrate.
186 Although customers may have an incentive to help the excluded firms avoid foreclosure,
see David T. Scheffman & Pablo T. Spiller, Buyers’ Strategies, Entry Barriers, and Competition,
30 ECON. INQUIRY 418 (1992), they need not be able or willing to do so. Customers’ ability to
assist excluded firms in executing a counterstrategy is unlikely to be greater than their ability to
undermine a voluntary cartel by sponsoring entry. In a market with many buyers, for example, no
180
181
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exclusion requires coordination between Coke and Pepsi, the inquiry into
method of exclusion would also include asking whether those firms could
successfully coordinate.187
Second, the exclusionary conduct must be sufficient to harm competition.
This condition requires in part that the excluded firm matter competitively;188
its exclusion must relax a competitive constraint on the excluding firms.189 In
addition, it requires that any remaining competition—whether from rivals not
excluded or not fully excluded, from entrants, or from among the excluding
firms themselves—not undermine what the relaxation of a competitive constraint has achieved for the excluding firms: their ability to raise market
prices. Accordingly, the excluding firms must prevent their involuntary cartel
from being undermined through repositioning or output expansion by unexcluded rivals, by the entry of new competitors, or by cheating among the excluding firms. In a prospective exclusion case, the ability of excluding firms
to solve the sufficiency problem might be inferred from an analysis of market
structure,190 or from past history of successful exclusion. In a retrospective
individual customer may have sufficient incentive to sponsor entry: doing so would be costly and
each buyer would recognize that most of the benefits would accrue to other buyers rather than
itself.
187 With multiple excluding firms, the excluding firms may have difficulty committing to their
exclusionary method, as they may be unable to avoid the temptation to cheat on the involuntary
cartel they have created by foreclosing their excluded rivals. The analysis of whether the excluding firms can successfully overcome this problem, an aspect of sufficiency, would be similar to
the analysis of whether the excluding firms would cheat on the collusive arrangement that would
have formed had the excluded firms joined the excluding firms voluntarily. This issue would not
arise if there is only a single excluding firm, as would be the case if Coke was a dominant firm.
188 See Joshua D. Wright, Moving Beyond Naı̈ve Foreclosure Analysis, 19 GEO. MASON L.
REV. 1163, 1186–87 (2012) (recommending that the share foreclosed by the adoption of an
exclusionary rights agreement be measured relative to the share foreclosed but for the adoption
of the agreement).
189 An excluded firm can constrain the excluding firms competitively even if it is not as efficient as the excluding firms. For example, if the industry price is $18, the excluding firms have
marginal costs of $10, and the sole excluded firm has a marginal cost of $15, competition would
be harmed if the excluding firms raise the price to $20 (say) through foreclosure of the excluded
firm, even though the excluded firm has a higher marginal cost than the excluding firms. In this
example, the exclusionary conduct would both raise price to consumers and increase the allocative efficiency loss that arises when price exceeds marginal cost. If foreclosure of an inefficient
firm allows a lower cost firm to expand output in its place, as may or may not occur, the resulting
production cost savings would create a countervailing benefit to aggregate welfare (although that
benefit would not be cognizable if the welfare criterion looks solely to consumers).
190 If the exclusionary conduct is undertaken by a dominant firm, for example, and the dominant firm excludes all significant fringe rivals (those that are not capacity-constrained or otherwise have a high cost of expansion) and entrants, the dominant firm would not face any
competitive threats. This simple economic idea underlies the truncated legal rule governing exclusionary conduct discussed in Part II.B. The second and third open questions about the rule
governing truncated condemnation of exclusionary conduct suggest some ways of making this
inference other than analyzing the consequences of excluding firm conduct for each actual and
potential rival individually. Supra notes 121–128 and accompanying text.
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exclusion case, where market definition may be more difficult,191 evidence of
actual competitive effects may also be available.192
Finally, the exclusionary conduct must be profitable for each excluding
firm.193 Each must reasonably expect that the additional profits it will obtain
or maintain through the successful operation of an involuntary cartel would
exceed the costs it incurs in achieving that arrangement.194 The costs might
include, for example, payments to sellers of complements that agree to exclude rivals, forgone revenues from reducing price below what the excluding
firms might otherwise charge (e.g., if predatory pricing is alleged as the exclusionary mechanism), or forgone profits on lost sales (e.g., if the excluding
firms refuse to deal with buyers that deal with a rival).195 In a retrospective
exclusion case, profitability might be inferred from observing higher prices or
other harms to competition.
The costs of exclusion, and thus the profitability of anticompetitive exclusionary conduct, depend upon the nature and scope of the method used to
exclude.196 Exclusionary strategies need not be expensive.197 A dominant
firm’s unilateral refusal to deal with suppliers that also supply an entrant or
fringe rival, for example, may not be costly if few or no suppliers defect to
191 See generally Baker, supra note 101, at 169–73 (discussing problems that arise in defining
markets in exclusion settings).
192 This possibility underlies the fourth open question about the truncated legal rule governing
exclusionary conduct. See supra notes 129–131 and accompanying text.
193 Krattenmaker and Salop’s notion of profitability includes an evaluation of efficiency justifications. See Krattenmaker & Salop, supra note 9, at 277–82. Efficiencies potentially affect profitability to the extent ancillary efficiencies reduce the costs and increase the benefits of
exclusion. Efficiencies are also possible means by which the excluding firms would justify otherwise harmful conduct. Hence, the truncated rule governing exclusionary conduct set forth in Part
IV.B requires the absence of a plausible efficiency justification, and efficiencies are considered
as part of a comprehensive reasonableness analysis (as would be undertaken if the truncated rule
does not apply).
194 When predatory pricing is the exclusionary instrument, this problem is termed “recoupment” because the excluding firms bear the cost of exclusion before they earn the rewards. The
prospects for profitability may be challenging to demonstrate in a case that is brought after the
excluding firms have incurred costs of exclusion but before the profits they may earn can be
observed, as may occur with predatory pricing. But profitability may be easier to evaluate when
the profits from exclusion arise coincident with the costs, as in many non-price exclusion
settings.
195 The costs may also include any expense associated with solving “cartel problems” if multiple excluding firms must coordinate in order to exclude rivals or raise price once that exclusion
has occurred. Ancillary benefits to the excluding firms of pursuing exclusionary conduct, such as
efficiencies, could reduce the net costs of implementing the method of exclusion.
196 When exclusion is coordinated, moreover, the costs and benefits of exclusion may differ
among the excluding firms. See Baker, supra note 46, at 601–02 (noting that one firm may have
borne a disproportionate fraction of the costs and earned the bulk of the benefits of an alleged
predatory pricing conspiracy among cigarette manufacturers).
197 See generally Creighton et al., supra note 81.
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dealing with the rival.198 Even when it is expensive for the excluding firms to
foreclose their excluded rivals, moreover, the prospective monopoly profits
the excluding firms obtain from successfully obtaining or protecting market
power may be great enough to make the expenditure worthwhile.199
B. PROFITABILITY
OF
PURCHASING
AN
EXCLUSIONARY RIGHT
The recent economic literature on exclusionary conduct has paid particular
attention to identifying conditions under which one exclusionary method, the
purchase of an exclusionary right, would be profitable for the excluding
firms200 —thus explaining how the excluding firms solve the third “exclusion
problem” using this strategy.201 A firm purchases an exclusionary right when
it pays a supplier or distributor (or other seller of complements) not to deal
with one or more of the excluding firm’s rivals.202 The arrangement could be
express, as with Alcoa’s contracts with hydroelectric power producers to prevent the generators from supplying electricity to other aluminum manufacturers,203 or Microsoft’s agreements with Internet access providers to limit
See, e.g., Lorain Journal Co. v. United States, 342 U.S. 143 (1951).
See generally Krattenmaker & Salop, supra note 9, at 273–77 (noting that rivals benefiting
from an involuntary cartel may find it necessary to share their monopoly profits with sophisticated input suppliers).
200 The analysis of the profitability of this exclusionary strategy is complicated by the need to
account for the interaction between the excluding firms and the vertically related firms (or other
sellers of complements) that agree not to deal with the excluded firms or otherwise foreclose
them.
201 Other exclusionary methods, not discussed in detail here, may resemble the purchase of an
exclusionary right because they may also involve contracts or understandings between the excluding firm and sellers of complements. These may include “most favored nations” (MFN, or
“most favored customer”) clauses, which can be employed by dominant firms to ensure that
fringe rivals and entrants cannot lower their costs by obtaining lower prices from sellers of
complements, bundled (or loyalty) discounts (or rebates) offered by manufacturers to dealers,
slotting allowances, and resale price maintenance. To the extent these methods operate like the
purchase of an exclusionary right, the economic analysis in the text is likely relevant to understanding their competitive implications. See John Asker & Heski Bar-Isaac, Vertical Practices
Facilitating Exclusion (NYU Working Paper, 2012) available at http://ssrn.com/abstract=218182
(a manufacturer can employ a range of vertical practices to share profits from its exercise of
market power with its dealers, thereby giving the dealers an incentive not to deal with an entrant
into manufacturing); cf. Timothy J. Brennan, Getting Exclusion Cases Right: Intel and Beyond,
CPI ANTITRUST CHRONICLE 5–7, Dec. 2011 (1), available at https://www.competitionpolicyinter
national.com/dec-11 (exclusionary conduct that operates by suppressing competition in the market for a complementary product can profit firms selling complements). (In other settings, though
these practices may harm competition through means other than exclusion (including facilitating
collusion, dampening competition, or facilitating anticompetitive price discrimination), or they
may permit firms to achieve efficiencies.)
202 Although the discussion below will be framed by an example in which the excluded firm
was cut off from the supply of a key input, the same analysis would apply if the excluded firm
was cut off from an important distribution channel.
203 See United States v. Aluminum Co. of Am., 148 F.2d 416, 422–23 (2d Cir. 1945) (Alcoa)
(describing agreements addressed in a 1912 government antitrust enforcement action).
198
199
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distribution of Netscape’s browser.204 The arrangement could also be tacit, as
when a manufacturer pays a generous wholesale price to a supplier and the
supplier returns the favor by not dealing with one or more rival
manufacturers.205
Several factors affect the profitability of exclusion through the purchase of
an exclusionary right.206 Some of these factors were addressed by the Seventh
Circuit in JTC Petroleum Co. v. Piasa Motor Fuels, Inc.207 In that case, the
court evaluated the plausibility of an alleged bid-rigging scheme in which the
defendant producers were said to have protected their collusive arrangement
by inducing suppliers of a key input to refuse to sell that input to JTC, a
maverick rival that otherwise would have cheated on the cartel. The appellate
court overruled the district court’s award of summary judgment to defendants,
holding that a rational jury could conclude that the excluded firm was the
victim of a supplier boycott organized by its rivals.
The four factors set forth below presume that a dominant firm is engaged in
the exclusionary conduct, without addressing the additional complications that
arise when firms coordinate to purchase exclusionary rights, as was alleged in
JTC Petroleum. Instead, the discussion will suppose that one of the alleged
excluding firms in the case, Piasa, paid asphalt suppliers not to supply one of
Piasa’s rival’s, JTC. This arrangement could have been negotiated explicitly
and memorialized contractually, or it could have been informal and tacit, as
might arise if Piasa paid generously for its asphalt purchases while simultaneously making clear to the supplier the high value it places on supplier
loyalty.208
United States v. Microsoft Corp., 253 F.3d 34, 67–68 (D.C. Cir. 2001) (en banc).
See, e.g., JTC Petroleum Co. v. Piasa Motor Fuels, Inc., 190 F.3d 775, 778 (7th Cir. 1999)
(Posner, C.J.) (noting that cartel members may have induced suppliers to refuse to sell to the
cartel’s maverick rival by paying a higher price for the supplied product).
206 See generally MICHAEL D. WHINSTON, LECTURES ON ANTITRUST ECONOMICS 133–97
(2006) (surveying the economic literature on exclusionary vertical contracts, with attention to
antitrust applications); Claudia M. Landeo, Exclusionary Vertical Restraints and Antitrust: Experimental Law and Economics Contributions, in RESEARCH HANDBOOK ON BEHAVIORAL LAW
AND ECONOMICS (Kathryn Zeiler & Joshua Teitelbaum eds., forthcoming) (surveying the experimental economic literature on exclusionary vertical contracts, with attention to antitrust
applications).
207 JTC Petroleum, 190 F.3d 775. The terminology employed here highlights the vertical structure of the exclusionary contracts but may be confusing to a reader familiar with the opinion. In
the opinion, the firms described here as producers are termed “applicators” (they are road contractors), and the firms described here as suppliers are termed “producers” (because they produce
asphalt for use by the applicators). Id. at 776.
208 An informal or tacit exclusionary arrangement presents an additional difficulty not present
if the exclusionary right is purchased through a contract. Piasa might wish to subsidize one or
more suppliers as an implicit quid pro quo for exclusivity, perhaps by paying generously for its
own input purchases. But Piasa could not profitably do so if the suppliers would act opportunistically (by taking the payment without following through by cutting off JTC), as the resulting
competition between Piasa and JTC would lower Piasa’s profits. However, the suppliers would
204
205
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The first factor is the relative profitability of success for Piasa and JTC. For
Piasa, success would mean excluding JTC and thus obtaining or maintaining
market power. For JTC, success would mean participating in the market by
avoiding exclusion. The relative profitability of success matters because the
firm with the greater financial advantage should its strategy succeed is better
positioned to win a bidding war over whether the supplier will sell asphalt to
JTC. Piasa may have a financial advantage arising from the monopoly profits
it would earn if it successfully excluded JTC,209 while JTC may have a financial advantage if can produce at lower cost than Piasa.210 In the JTC Petroleum
case, the Seventh Circuit addressed this factor by explaining that the cartel
profits could have given the producers a fund with which to compensate the
input suppliers.211
The second factor affecting the profitability to Piasa of purchasing an exclusionary right from an input supplier is Piasa’s ability to limit the scope and
cost of its investments in exclusion through careful targeting.212 For example,
if Piasa must pay the supplier to deal with Piasa exclusively, and thus pay it
not to sell to a wide range of other firms (perhaps including rivals to Piasa and
firms producing in geographic markets other than those in which Piasa and
JTC compete), Piasa may have to pay more than it would pay to induce the
supplier not to sell to just one firm, JTC. Piasa was more likely to find the
not necessarily act opportunistically, for example if they fear that Piasa would respond by not
purchasing from them.
209 Piasa would no longer have that advantage if JTC would reasonably expect that if it manages to avoid exclusion, Piasa would not compete aggressively against it. See Chiara Fumagalli
& Massimo Motta, Exclusive Dealing and Entry, When Buyers Compete, 96 AM. ECON. REV.
785 (2006) (noting that if a successful entrant would be likely to take a substantial fraction of the
market from a dominant incumbent, distributors may see greater benefit in dealing with the
entrant than they would if the entrant’s prospects were more limited).
210 JTC might have a more efficient production technology or better business model, for example. In other settings, the excluded firm’s financial advantage should it successfully enter might
come from its ability to offer an attractive new or improved product. Even if JTC has substantial
financial resources, moreover, its ability to convince suppliers to sell it asphalt will also depend
on the extent to which an individual supplier would expect to share in the profits from JTC’s
marketplace success. The more that competition among asphalt suppliers to serve JTC would be
expected to dissipate supplier profits, the less interest a supplier would have in serving JTC
rather than accepting Piasa’s request for exclusivity. See WHINSTON, supra note 206, at 148–49;
John Simpson & Abraham L. Wickelgren, Naked Exclusion, Efficient Breach, and Downstream
Competition, 97 AM. ECON. REV. 1305 (2007).
211 JTC Petroleum, 190 F.3d at 778. There was no suggestion that the excluded firm was an
efficient producer that would have earned higher profits in a competitive market than the alleged
cartelists would have obtained through successful bid-rigging. See id.
212 See Claudia M. Landeo & Kathryn E. Spier, Naked Exclusion: An Experimental Study of
Contracts with Externalities, 99 AM. ECON. REV. 1850 (2009) (discrimination by incumbent
seller facilitates exclusion); Patrick DeGraba, Naked Exclusion by a Dominant Supplier: Exclusive Contracting and Loyalty Discounts (Fed. Trade Comm’n, Working Paper No. 306, 2010),
available at http://www.ftc.gov/be/workpapers/wp306.pdf (a dominant input supplier can prevent a smaller rival from expanding by using exclusive contracts and price discriminating based
on an end user’s likelihood of purchasing products made with the rival’s input).
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strategy of purchasing an exclusionary right to be profitable if it could exclude
JTC cheaply.213 This factor was not addressed explicitly in the Seventh Circuit’s JTC Petroleum decision, perhaps because the alleged exclusionary conduct in that case targeted only the maverick rival and was not so broad in
scope as to call into question the profitability of this exclusionary strategy.
The third factor affecting the profitability of exclusion through purchase of
an exclusionary right is whether the suppliers expect Piasa to succeed in excluding JTC. This factor would matter most if there were many suppliers (or,
equivalently, many distributors), and the excluded rival (JTC) must obtain the
key input from several suppliers (but not necessarily all) in order to succeed.
Under such circumstances, each supplier’s decision to contract with Piasa not
to deal with JTC—and the price it will demand from Piasa in order to exclude
JTC—may depend on each supplier’s expectations about JTC’s likely success
in reaching a deal with other suppliers.214 If each supplier thinks that JTC is
unlikely to find enough supply to compete successfully by contracting with
213 To similar effect, Alcoa apparently targeted entry by rival aluminum producers by contracting with hydroelectric power producers to prevent the generators from supplying electricity
to other aluminum manufacturers. The contracts were targeted because they did not preclude the
power producers from selling electricity to firms producing other products. See United States v.
Aluminum Co. of Am., 148 F.2d 416, 422–23 (2d Cir. 1945) (Alcoa) (describing agreements
addressed in a 1912 government antitrust enforcement action). Selective price matching may also
operate as a targeted exclusionary strategy. For example, a manufacturer may exclude a rival by
matching any price reduction that the rival offers customers with a comparably low price. That
strategy would be targeted if the manufacturer only cuts price to those customers solicited specifically by the excluded rival. But if the manufacturer cannot commit to limited targeting in response to competition, and must fight an aggressive rival with an (expensive) across-the-board
price reduction, then the exclusionary price-cutting strategy may not be profitable. Cf. MICHAEL
E. PORTER, COMPETITIVE ADVANTAGE 500–01, 511 (1985) (recommending “plac[ing] potential
challengers at a relative cost disadvantage” by “targeting” price cuts on “products that are likely
initial purchases by new buyers” or by “localizing” the response to rival price cutting “to particularly vulnerable buyers” rather than across-the board to reduce the cost of the response); BRUCE
GREENWALD & JUDD KAHN, COMPETITION DEMYSTIFIED 231 (2005) (recommending than an
incumbent respond to entry by “punish[ing] the newcomer as severely as possible at the lowest
possible cost to itself”). But see Judith R. Gelman & Steven C. Salop, Judo Economics: Capacity
Limitation and Coupon Competition, 14 BELL J. ECON. 315, 316 n.2 (1983) (noting that even
small sunk expenditures may be sufficient to prevent entry by serving as a credible commitment
to post-entry competition across-the-board). I am grateful to Aaron Edlin for sharing his insights
into the exclusionary potential of price-matching by incumbent firms.
214 Supplier expectations may depend on the nature of the interdependence among their decisions. One supplier’s decision to contract with JTC may confer a positive externality on other
suppliers, as by making it more likely that JTC’s strategy to compete will succeed. For example,
each supplier’s agreement to supply JTC may make it more likely that JTC will convince enough
other suppliers to do so, and in consequence, may make it more valuable for each undecided
supplier to agree to supply JTC. In other settings, however, the decision by one supplier to
contract with JTC would reduce the sales and profits available to other suppliers, conferring a
negative externality that lessens other suppliers’ gains from contracting with JTC. Supplier expectations may also depend on whether the excluding firms can improve their odds of success by
supplementing the strategy of purchasing an exclusionary right with additional strategies for
raising rivals’ costs or reducing their access to the market.
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other suppliers, it would do better by accepting a payment from Piasa for
exclusivity—even if it gets little or nothing for doing so—than by contracting
with JTC.215 The critical role of supplier expectations in this dynamic may
mean that the greater the number of suppliers JTC needs to contract with for
viability, the less likely that any individual supplier would expect JTC to succeed and, thus, the more likely that each supplier would agree with Piasa not
to deal with JTC.216
The JTC Petroleum opinion did not address this factor explicitly, presumably because there were only three suppliers, and JTC would likely succeed if
it contracted with any one of them. But the opinion did consider supplier
expectations by providing three possible reasons why no supplier would act
against the cartel’s wishes: the cartel might be able to coerce the suppliers by
threatening to exercise monopsony power, the cartel’s payments to the suppliers may have been too large to resist, and the suppliers themselves may have
colluded (as plaintiffs had alleged), so each supplier’s individual decision not
to sell to the maverick producer may also have been supported by the threat of
punishments from the other suppliers.217 These possibilities suggest ways that
Piasa could have succeeded in excluding JTC by influencing supplier expectations if JTC had needed to assemble multiple suppliers in order to compete.
The final factor affecting the profitability of Piasa’s purchase of an exclusionary right is the relative ability of Piasa and JTC to make credible commitments to the suppliers. Piasa’s bargaining position with the suppliers would be
improved if it can commit that it will not purchase from suppliers that sell to
JTC.218 If Piasa can convince the suppliers that they must choose between it
and JTC—that Piasa will follow through on its intention not to buy from
suppliers that sell to JTC—then the suppliers may prefer to work with Piasa
by cutting off JTC even if Piasa offers little or nothing in payment for exclusivity. But if the suppliers think that in the event they sell to JTC, Piasa would
prefer to continue to purchase from them notwithstanding Piasa’s displeasure
with their decision to do business with JTC, then Piasa will have to pay more
215 If JTC needs multiple suppliers to survive but each supplier thinks the other suppliers will
accept an exclusive deal with Piasa, no supplier would break ranks to deal with JTC even if Piasa
pays nothing. After all, a supplier that expects JTC to fail would not want to ruin its relationship
with Piasa by contracting with JTC.
216 Although the pure “naked exclusion” model has two equilibria, one in which all bottlers
agree to exclusivity with Piasa and one in which none do so, the exclusion equilibrium dominates
if Piasa can convince even a small number of suppliers not to deal with JTC. See Rasmusen et
al., supra note 80, at 1143–44; Ilya R. Segal & Michael D. Whinston, Naked Exclusion: Comment, 90 AM. ECON. REV. 296 (2000).
217 JTC Petroleum Co. v. Piasa Motor Fuels, Inc., 190 F.3d 775, 778–79 (7th Cir. 1999) (Posner, C.J.).
218 Cf. Steven C. Salop & R. Craig Romaine, Preserving Monopoly: Economic Analysis, Legal
Standards, and Microsoft, 7 GEO. MASON L. REV. 617, 640–42 (1999) (discussing credibility of
predatory threats by a dominant firm).
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to induce the suppliers not to deal with JTC, possibly making it uneconomic
for Piasa to employ this exclusionary strategy.219 The court did not explicitly
consider this factor, but it implicitly addressed the credibility of cartel threats
not to purchase from suppliers that sell to JTC and other maverick producers
by suggesting the possibility that the colluding producers had coerced the
suppliers.
The three exclusion problems (means, sufficiency, and profitability) differ
from the three cartel problems (reaching consensus, deterring deviation, and
preventing new competition) because the mechanisms by which firms achieve
an involuntary cartel and a voluntary one are not the same.220 But as will be
seen in the next Part, the legal rules governing structured review of alleged
exclusionary and collusive conduct limit the factors that a court must consider
before truncated condemnation in analogous ways—providing additional support for the conclusion that antitrust doctrine treats anticompetitive exclusion
and anticompetitive collusion as comparably serious offenses.
C. EXCLUSION PROBLEMS
AND
TRUNCATED REASONABLENESS REVIEW
The economic logic underlying truncated reasonableness review is clarified
by recognizing that firms may obtain or maintain market power by solving
exclusion problems or collusion problems. The structured rules that permit
condemnation of exclusionary or collusive conduct, described above in Part
II.B, prove harm to competition through limited factual showings.221 In the
collusion context, plaintiff may rely on facial analysis or categorization of the
agreement (as price fixing or market division), or on actual effects evidence.222
In the exclusion context, plaintiff may rely, at a minimum, on evidence that all
actual or potential rivals other than insignificant competitors have been
excluded.223
219 On the other hand, if JTC can commit to limiting its output (as by adopting a high-cost or
capacity-constrained production process, or locating its facilities so it can only serve some customers inexpensively), then Piasa may conclude that it would be less costly to allow JTC to enter
rather than spend what would be required to prevent JTC from obtaining key inputs. See Gelman
& Salop, supra note 213, at 315.
220 The problems may overlap, however, if colluding firms must solve their exclusion problems
in order to prevent new competition by rivals or entrants, or if multiple excluding firms must
solve their cartel problems in order to exclude.
221 Both rules have two elements other than harm to competition. Each incorporates a conduct
predicate—exclusion in one case, agreement in the other—and each requires the absence of a
plausible efficiency justification for the exclusionary conduct or collusive arrangement at issue.
222 See supra notes 84–86 and accompanying text.
223 See supra note 97 and accompanying text. Some of the open questions ask whether two
other limited forms of proof, actual effects evidence and excluding firm market power, could
also be sufficient to demonstrate harm to competition. See supra notes 121–122, 129–131, and
accompanying text.
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Those truncated rules limit the detail with which competitive effects are
analyzed. They may make it unnecessary to examine whether a defendant can
or did solve each exclusion problem (in an exclusionary effects case) or each
cartel problem (in a collusive effects case), as would be relevant when evaluating the conduct under the comprehensive rule of reason.224 The truncated
condemnation rule for exclusionary conduct infers harm to competition from
evidence that all actual or potential rivals other than insignificant competitors
have been excluded through conduct lacking a plausible efficiency justification. If these facts can be demonstrated, the conduct can be found to harm
competition by presuming (or inferring) that firms can solve one of their exclusion problems, profitability, without specifically analyzing it. Two of the
open questions—the possibility that proof of excluding-firm market power
may permit the inference that all rivals are or likely would be excluded from
evidence that one has been excluded, and the possibility that harm to competition could be shown through actual effects evidence in a retrospective exclusion case—raise the possibility of presuming (or inferring) that firms can also
solve a second exclusion problem, sufficiency, again without specifically analyzing it.
Whether exclusion or collusion is alleged, truncation of the reasonableness
review means that adverse competitive effects can be inferred without showing fully why the anticompetitive mechanism worked: why it was profitable in
224 See, e.g., United States v. Visa U.S.A., Inc., 344 F.3d 229 (2d Cir. 2003) (explicitly analyzing the method of exclusion and its sufficiency, and implicitly analyzing its profitability by
recognizing that it protected excluding-firm market power from erosion). A wide range of other
evidence could be relevant under the comprehensive rule of reason to determining whether defendants in an exclusionary conduct case have solved their exclusion problems. For example, the
availability of potential alternative sources of distribution to an excluded manufacturer may bear
on whether the plaintiff was substantially or insignificantly excluded, as may the duration and
costs of terminating the exclusivity agreements that limit the excluded firm’s access to customers, and the percentage of the market foreclosed to the excluded firm by the conduct at issue may
be relevant to assessing the sufficiency of the alleged exclusionary acts to create harm to competition. E.g., Omega Envtl., Inc. v. Gilbarco, Inc., 127 F.3d 1157 (9th Cir. 1997); cf. NicSand, Inc.
v. 3M Co., 507 F.3d 442 (6th Cir. 2007) (finding that an excluded rival challenging a dominant
manufacturer’s multi-year distribution contracts with all major retailers lacked antitrust injury
when the excluded rival was formerly dominant, previously had exclusive distribution arrangements with most of the leading retailers, and had an equal opportunity to compete for exclusivity
with the new dominant firm). The focus on “coercion” by the excluding firm in a recent appellate
decision can be understood either as an aspect of the inquiry into whether the plaintiff has alternatives for avoiding exclusion (an inquiry into “method”) or as an aspect of an inquiry into
whether the defendant had a legitimate business justification for the practice. Race Tires Am.,
Inc. v. Hoosier Racing Tire Corp., 614 F.3d 57, 77–79 (3d Cir. 2010). Comprehensive reasonableness analysis of exclusionary conduct is the same regardless of whether the conduct is challenged by the government or an excluded firm or whether the case is brought under Sherman Act
Section 1 (as a vertical agreement), Sherman Act Section 2 (as monopolization or an attempt to
monopolize), Clayton Act Section 3 (as exclusive dealing), or FTC Act Section 5. See generally
HOVENKAMP, supra note 36, § 10.9 (noting that exclusive dealing has been condemned under
several statutes).
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both settings, perhaps why the method was sufficient in an exclusion case, and
how the firms deterred cheating and prevented new competition in a collusion
case. The specific methods by which firms exercise market power differ
across the settings, but the burden on plaintiff is reduced in an analogous way
in each. Again the formal structure of the truncated doctrinal rule does not
treat exclusion differently from collusion.
V. POLICY CONSIDERATIONS DO NOT JUSTIFY
DOWNPLAYING EXCLUSION
Although the rhetorical consensus for treating exclusion as a lesser offense
is commonly asserted without explicit justification, its defenders sometimes
argue that false positives (convictions) are more likely or more costly with
exclusionary violations than collusive ones, while false negatives (acquittals)
are less likely or less costly with exclusion than collusion.225 This framing
adopts an “error cost” perspective to evaluate antitrust rules, under which the
best rule minimizes total social costs.226 This general approach toward evaluating legal rules has been employed by the Supreme Court in recent antitrust
decisions.227
In antitrust applications, the costs to society that need to be considered extend beyond litigation costs and the consequences of alternative decisions to
the parties to a case; they also include the benefits (negative costs) of deterring harmful conduct and costs of chilling beneficial conduct, throughout the
See, e.g., Keith N. Hylton, The Law and Economics of Monopolization Standards, in ANTILAW AND ECONOMICS 82, 102 (Keith N. Hylton ed., 2010).
226 The relevant social costs are commonly described as the costs of false positives and false
negatives, along with the transaction costs associated with the use of the legal process. See DOJ
SECTION 2 REPORT (WITHDRAWN), supra note 11, at 15–18 (endorsing error cost framework for
the evaluation of Section 2 standards). Transaction costs include more than the costs of litigation;
they also include costs associated with information-gathering by the institution specifying decision rules. See C. Frederick Beckner III & Steven C. Salop, Decision Theory and Antitrust Rules,
67 ANTITRUST L.J. 41 (1999).
227 See, e.g., Leegin Creative Leather Prods., Inc. v. PSKS, Inc., 551 U.S. 877, 895 (2007);
(explaining that per se rules may “increase the total cost of the antitrust system” even when they
“decrease administrative costs” if they “prohibit[ ] procompetitive conduct the antitrust laws
should encourage” or “increase litigation costs by promoting frivolous suits against legitimate
practices” and overruling rule of per se illegality against vertical price restraints); Verizon
Commc’ns Inc. v. Law Offices of Curtis V. Trinko, LLP, 540 U.S. 398, 408 (2004) (describing a
need to be “very cautious” in finding an antitrust violation when a dominant firm unilaterally
refuses to cooperate with a rival “because of the uncertain virtue of forced information sharing
and the difficulty of identifying and remedying anticompetitive conduct by a single firm”); id. at
414 (expressing concern with the “cost of false positives” arising from the possibility that
“generalist antitrust court” would need to enforce a complex statutory scheme in a dynamic
industry); Brooke Grp. Ltd. v. Brown & Williamson Tobacco Corp., 509 U.S. 209, 226 (1993)
(stating that in predatory pricing cases, “the costs of an erroneous finding of liability are high”
because of the danger that false convictions would chill procompetitive price cutting).
225
TRUST
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economy.228 But it can be difficult to account for economy-wide effects within
the error cost framework.229 Moreover, when deterrence and chilling effects
are accounted for, substantive legal rules can properly be compared on the
basis of their error costs only if the comparison holds constant a wide range of
background institutions: both antitrust enforcement institutions, such as rules
governing burdens of proof,230 which can vary in impact across doctrinal categories,231 and non-antitrust institutions, such as the scope of intellectual property rights.232 Notwithstanding these conceptual and practical difficulties, this
section will discuss antitrust rules in terms of the familiar categories of false
positives and false negatives.
Given that the similarity in the economic reasons for concern about anticompetitive collusion and anticompetitive exclusion,233 and the similar structure to the legal rules governing exclusion and collusion,234 an error cost
argument for downplaying exclusion relative to collusion cannot turn on how
conduct would be evaluated by an omniscient judge faithfully applying the
rules. Rather, the two leading and closely related policy arguments offered for
downplaying exclusion relative to collusion rely on arguments about the relative likelihood and magnitude of mistakes in the antitrust review of collusive
conduct compared with exclusionary conduct. The first supposes that it is
228 See, e.g., Brooke Group, 509 U.S. at 223 (permitting predatory pricing enforcement based
on above cost prices would create “intolerable risks of chilling legitimate price-cutting”); Allied
Orthopedic Appliances Inc. v. Tyco Health Care Grp., 592 F.3d 991, 1000 (9th Cir. 2010) (noting that courts should not find monopolization when the alleged exclusionary act is a non-sham
product design improvement because of the danger of dampening technological innovation and
the difficulty of weighing uncertain future benefits against current competitive harms). Deterrence considerations are particularly important in evaluating antitrust rules. See generally
Jonathan B. Baker, The Case for Antitrust Enforcement, 17 J. ECON. PERSP., Autumn 2003, at 27.
229 False positives and false negatives may not neatly map onto overdeterrence and underdeterrence, respectively, because the deterrence consequences of legal errors depend in part on the
way the errors affect the marginal costs and benefits to firms of taking precautions to avoid
violations. See generally Warren F. Schwartz, Legal Error, in ENCYCLOPEDIA OF LAW AND ECONOMICS 1029, 1029–38 (Boudewijn Bouckaert & Garrit De Geest eds., 1999), available at http://
encyclo.findlaw.com/0790book.pdf.
230 See generally Louis Kaplow, Burden of Proof, 121 YALE L.J. 738 (2012); Wickelgren,
supra note 77, at 54 (noting that the consequences of greater accuracy at trial for firm conduct
depend in part on whether firms can predict how trial outcomes will change, whether settlement
outcomes are improved, and how decisions to sue or settle are affected).
231 See Stephen Calkins, Summary Judgment, Motions to Dismiss, and Other Examples of
Equilibrating Tendencies in the Antitrust System, 74 GEO. L.J. 1065, 1127–39 (1986) (documenting the way the antitrust treble damages remedy has shaped substantive and procedural
antitrust law across doctrinal categories).
232 The balance of error costs could change if the antitrust rules themselves change, as when
the Supreme Court modified many legal rules in response to Chicago School concerns that they
impeded efficiency enhancing business conduct, or if the background institutions change even
when the rules do not.
233 See supra Part III.A.
234 See supra Part II.B.
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harder to tell apart harmful and beneficial conduct when exclusion is alleged,
so enforcers and courts are more likely to make errors in that setting.235 The
second contends that false positives are more dangerous when exclusion is
alleged because they are more likely to chill beneficial conduct like price cutting and new product introductions—making it more important that enforcers
and courts avoid errors in the exclusion setting.236 If errors are more frequent
and more costly to society when exclusionary conduct is alleged, as these two
stories claim, enforcers and courts should be more cautious in challenging
such conduct.
The enforcement agencies do challenge anticompetitive collusion more frequently than they challenge anticompetitive exclusion. Since 1980, U.S. cases
involving horizontal restraints, a collusion-oriented doctrinal category, have
been brought substantially more often than cases in doctrinal categories where
exclusion is more likely to be found (monopolization and vertical agreements).237 Although this observation may seem to follow from agency views
regarding relative error costs,238 or even to vindicate that perspective, there is
235 See Frank H. Easterbrook, When Is It Worthwhile to Use Courts to Search for Exclusionary
Conduct?, 2003 COLUM. BUS. L. REV. 345, 345 (“[C]ompetitive and exclusionary conduct look
alike.”); DOJ SECTION 2 REPORT (WITHDRAWN), supra note 11, at 13 (“[O]ften the same conduct
can both generate efficiencies and exclude competitors.”).
236 See Easterbrook, supra note 235, at 347.
237 See generally Kovacic, supra note 30, at 377. Including Robinson-Patman violations as an
exclusion category would not alter this conclusion. The frequency of anticompetitive collusion
challenges relative to harmful exclusion allegations in court cases is also likely skewed toward
collusion, even though the frequency of court cases is likely driven by private litigation rather
than agency enforcement actions. A study of the private treble damages cases filed between 1973
and 1983 in five districts found substantially more raised horizontal allegations (which tend to
involve collusive conduct) than vertical allegations (which more often involve exclusionary conduct). See Steven C. Salop & Lawrence J. White, Treble Damages Reform: Implications of the
Georgetown Project, 55 ANTITRUST L.J. 73, 74 (1986) (finding that “52.8 percent of cases incorporated vertical allegations [while] 71.6 percent [incorporated]] horizontal allegations”). Many
cases included both horizontal and vertical claims, consistent with the possibility that exclusionary conduct was part of a collusive scheme (as can be the case even when the plaintiff is a rival).
See, e.g., JTC Petroleum Co. v. Piasa Motor Fuels, Inc., 190 F.3d 775 (7th Cir. 1999). These
statistics were not driven by cases brought by standalone competitors, as they accounted for only
22.9 percent of the filings in the sample. See Salop & White, supra, at 74. The explanations and
implications of the disparity in the frequency of the two types of agency cases, discussed below,
would also likely apply to the interpretation of the relative frequency of private cases, as private
plaintiffs and their attorneys often face a similar cost-benefit calculus as the enforcement agencies in allocating their resources and many private cases are follow-ons to government
investigations.
238 Cf. DOJ SECTION 2 REPORT (WITHDRAWN), supra note 11, at 5, 8 (relying on the U.S
experience applying Section 2 to derive broad principles). In recent years, moreover, the agencies may have begun to prioritize collusion in ways that go beyond allocating enforcement resources. The agencies have targeted collusion for increased penalties, greater international
cooperation, and the increased use of leniency programs to provide an incentive for colluding
firms to come forward. Scott D. Hammond, Deputy Assistant Att’y Gen., U.S. Dep’t of Justice,
The Evolution of Criminal Antitrust Enforcement Over the Last Two Decades (Feb. 25, 2010),
available at http://www.justice.gov/atr/public/speeches/255515.htm; see Stephen Labaton, The
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actually no necessary relationship between the distribution of errors and their
costs and the relative frequency of cases. Even if the allocation of agency
cases provides a reliable guide to the relative frequency of the two types of
competitive problems, the observed enforcement pattern does not mean that
errors in resolving antitrust allegations, whether false positives or false negatives, are either more frequent or more costly in exclusion settings. Nevertheless, to evaluate the relative frequency and magnitude of errors, it is useful to
first examine why the agencies emphasize collusion over exclusion in case
selection.
A. RELATIVE FREQUENCY
OF
ERRORS
To begin with frequency, the connection between the relative number of
collusion and exclusion challenges and the frequency of errors depends in part
on why the agencies bring more collusion cases than exclusion cases. There
are a number of possible explanations, including the following four. First, the
agencies may bring more collusion cases because the antitrust laws deter anticompetitive exclusion more effectively than they deter anticompetitive collusion.239 This explanation makes sense: collusion is likely easier to hide than
exclusion; exclusion can often more easily or reliably be achieved through
conduct that would not violate the antitrust laws (such as lobbying for governmentally created entry barriers240); and firms with an incentive to avoid anti-
World Gets Tough on Fixing Prices, N.Y. TIMES, June 3, 2001, http://www.nytimes.com/2001/
06/03/business/the-world-gets-tough-on-fixing-prices.html. At the same time, they have debated
whether courts should relax the legal rule governing monopolization, which is almost always an
exclusionary offense, in order to raise the practical burden on plaintiffs. See supra note 37. By
contrast, European competition policymakers tend to express greater concern with exclusionary
conduct. See, e.g., Eleanor Fox & Daniel Crane, GLOBAL ISSUES IN ANTITRUST AND COMPETITION LAW 122, 123–29 (2010) (contrasting the EU test for predatory pricing with the “very
conservative” approach of U.S. courts); id. at 130 (observing that EU law is more likely to
require that a dominant firm deal with its rival than U.S. law); id. at 143 (noting “a significant
divide” between the United States and the European Union on using competition policy to address margin squeezes by regulated firms); id. at 197 (“The European Union . . . is less permissive [than U.S. law on vertical restraints].”).
239 Many examples of anticompetitive collusion, exclusion, and mergers have been documented across a range of industries during periods of lax antitrust enforcement, such as the
quarter century after the Sherman Act was enacted, suggesting that the antitrust laws have deterred a great deal of anticompetitive conduct. See Baker, supra note 228, at 36–38.
240 Cf. James C. Cooper, Paul A. Pautler & Todd J. Zywicki, Theory and Practice of Competition Advocacy at the FTC, 72 ANTITRUST L.J. 1091 (2005) (describing trends in the FTC’s competition advocacy program, which questions proposed federal or state legislation and regulations
that threaten to impede competition). The Federal Trade Commission has also emphasized the
importance of construing the state action exemption to the antitrust laws narrowly in order to
discourage the manipulation of regulatory processes for private rent-seeking. See John T. Delacourt & Todd J. Zywicki, The FTC and State Action: Evolving Views on the Proper Role of
Government, 72 ANTITRUST L.J. 1075 (2005).
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trust liability may find it easier to prevent managers from harming
competition through exclusion than from doing so through collusion.241
Second, the agencies may bring more collusion cases because they have
chosen to direct the bulk of their investigative resources toward collusion
rather than exclusion for reasons of efficiency in budget and personnel allocation rather than because of their perception of the distribution of error costs.
They likely find it cost-effective to focus their efforts outside merger review
on anticompetitive conduct that lacks a plausible efficiency justification,242
and when they do, they likely discover that naked collusion is more common
than plain exclusion.243
Third, the relative counts of collusion and exclusion cases may overstate
the relative frequency of collusion because of the way the cases are counted.
The most plausible way this could happen is if mixed cases—cases in which
firms both collude and exclude—are not infrequent and are routinely viewed
solely as collusion cases.244 Under such circumstances, the agencies may appear to be directing their enforcement efforts toward collusion more than they
are doing in fact.
These three explanations—greater deterrence of exclusion, agency resource
allocation decisions, and treating mixed cases solely as collusion matters—are
collectively more likely than the fourth possibility, which is implicitly accepted by those who favor the error cost argument for downplaying exclusion:
that collusion cases are more common because it is more difficult to distinguish harmful from beneficial conduct in exclusion settings than in collusion
settings. Yet only the fourth explanation tends to suggest that enforcers and
courts are more likely to make errors in resolving exclusion allegations than
collusion allegations.
Moreover, the fourth explanation is problematic. It is hard to see why the
difficulties in identifying harm to competition would be systematically greater
in an exclusion setting than a collusion one if the challenged conduct has no
241 See William H. Page, Optimal Antitrust Remedies: A Synthesis 15–16 (Working Paper
2012), available at http://ssrn.com/abstract=2061791.
242 See Creighton et al., supra note 81, at 995 (recommending that enforcers target cheap exclusion); First, supra note 80, at 160–62 (recommending new remedial tools for attacking monopolization through conduct lacking an efficiency justification).
243 See Jacobson, supra note 80, at 361 (noting that in the context of vertical exclusive dealing,
exclusionary conduct lacking any plausible justification “appears unusually rare”). Even if plain
exclusion is no less common than naked collusion, moreover, antitrust cases attacking plain
exclusion may be less frequent if exclusionary conduct lacking any plausible business justification is commonly attacked under non-antitrust statutes. See A. Douglas Melamed, Exclusionary
Conduct Under the Antitrust Laws: Balancing, Sacrifice, and Refusals to Deal, 20 BERKELEY
TECH. L.J. 1247, 1249 (2005).
244 See supra notes 43–48, 149–155 and accompanying text.
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plausible efficiency justification in each case—that is, in a universe limited to
naked collusion and plain exclusion. It is also hard to see why the difficulties
identifying anticompetitive practices would be greater in an exclusion setting
for the rest of the relevant universe—that is, if the challenged conduct does
have a plausible efficiency justification in each case.
For example, to pick an exclusionary practice,245 a manufacturer’s requirement that a retailer not distribute rival manufacturers’ products may benefit
the manufacturer primarily because the practice creates efficiencies (as by
eliminating double marginalization or otherwise aligning incentives between
manufacturer and retailer), or it may benefit the manufacturer primarily because the practice confers market power by excluding rival manufacturers
from access to low cost distribution. It may be difficult to distinguish between
these explanations. But it may equally be difficult to tell whether a retailing
joint venture between two manufacturers, to pick a collusive practice, primarily benefits them by lowering production costs (as by generating scale economies) or by conferring market power through a reduction in the direct
competition between them. It may also be difficult to tell whether an agreement among rivals to exchange information (perhaps implemented through
their trade association) benefits competition by helping the firms match production to costs and demand, or whether it harms competition by facilitating
collusion, as by helping them detect cheating rapidly.246
The casual but erroneous supposition that it is harder to distinguish harms
from efficiencies in the exclusion setting is likely the result of a category
mistake: comparing the difficulty of proving harm from naked cartels, where
there is no plausible efficiency, with the difficulty identifying anticompetitive
exclusionary practices when the conduct has a plausible justification.247 Naked
cartels probably come first to mind as a collusive practice, given the frequency with which the enforcement agencies announce such cases. But when
245 No example can be representative, but the argument plausibly generalizes beyond the examples provided here.
246 For case examples that suggest the difficulty of distinguishing harms to competition and
efficiencies when collusion is alleged, see, for example, Broadcast Music, Inc. v. CBS Inc., 441
U.S. 1 (1979) (reversing lower court decision finding a blanket licensing agreement among rival
copyright owners illegal per se); United States v. Topco Associates, 405 U.S. 596 (1972) (striking territorial restrictions on the marketing of private label products distributed by a joint venture
among supermarkets, some of which were effectively horizontal rivals); General Motors Corp.,
103 F.T.C. 374 (1984) (approving joint production venture between rival automakers subject to
conditions).
247 Similarly, it would be inappropriate to make inferences about the relative harm arising from
exclusion and collusion by comparing the competitive harm from the typical naked cartel to the
competitive harm from the typical instance of exclusionary conduct, whether plain or justified by
an efficiency. See Aaron Edlin, Predatory Pricing, in RESEARCH HANDBOOK ON THE ECONOMICS
OF ANTITRUST LAW 144, 173 (Einer Elhauge ed., 2012) (“Presumably, it is true . . . that most
price cuts are pro-competitive . . . . However, no antitrust proposals attack all price cuts, so that
sample is irrelevant.”).
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thinking about exclusion without reflecting on how to make an apples-to-apples comparison, the top-of-mind exclusionary practice will often be a vertical
contract with a plausible efficiency justification, rather than an example of
plain exclusion, such as the conduct found to violate the antitrust laws in
Lorain Journal and Microsoft. The casual supposition misleads because plain
exclusion would correspond to a naked cartel, while a vertical contract with a
plausible justification would not. A comparison based on a category mistake
provides no reason to expect more frequent enforcement and adjudicative errors in resolving exclusion cases than in evaluating collusion cases.
B. RELATIVE COST
OF
ERRORS
For the reasons set forth above, downplaying exclusion cannot be justified
based on the view that false positives are more common in the exclusion setting. If a justification remains, it would instead have to be based on a supposition that any errors that do occur are more costly when exclusion is alleged
than when collusion is alleged. Two primary arguments have been offered for
this latter supposition—one based on empirical studies and the other rooted in
an analysis of institutional competence—but neither is convincing.
First, some commentators suggest that the many empirical studies that have
identified efficiencies and other competitive benefits from vertical integration
and vertical agreements show that anticompetitive consequences of such practices are unlikely, so antitrust rules should favor defendants in exclusionary
conduct categories.248 But these studies would be probative only if they show
that errors are more costly when exclusion is alleged than when collusion is
alleged, which they do not.249 Many of the cited studies do not discriminate
between exclusionary and collusive explanations for vertical agreements;250
taken at face value, they would question the prevalence of both explanations
and thus cannot provide a basis for downplaying exclusion relative to collusion.251 Moreover, the business decisions evaluated in these studies are com248 Jeffrey Church, Vertical Mergers, in 2 ISSUES IN COMPETITION LAW AND POLICY, supra
note 52, at 1455, 1495–97; James C. Cooper, Luke M. Froeb, Dan O’Brien & Michael G. Vita,
Vertical Antitrust Policy as a Problem of Inference, 23 INT’L J. INDUS. ORG. 639 (2005); Geoffrey A. Manne & Joshua D. Wright, Innovation and the Limits of Antitrust, 6 J. COMPETITION L.
& ECON. 153, 161 n.23 (2010).
249 The studies do not bear on the relative frequency of errors, so also do not show that false
positives would be more frequent in exclusion cases than collusion cases.
250 Cf. Leegin Creative Leather Prods., Inc. v. PSKS, Inc., 551 U.S. 877, 892–94 (2007) (discussing both collusive and exclusionary explanations for resale price maintenance).
251 The prevention or elimination of free riding can potentially justify both vertical and horizontal agreements. Cont’l T.V., Inc. v. GTE Sylvania Inc., 433 U.S. 36 (1977) (vertical non-price
agreement); Polk Bros., Inc. v. Forest City Enters., Inc., 776 F.2d 185 (7th Cir. 1985) (horizontal
market division agreement between potential rivals). “Free riding” refers to the externality that
arises when investments by one firm increase demand or reduce costs for rivals, and the first firm
is not compensated for providing this benefit. The elimination of free riding is frequently in-
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monly made under the shadow of the antitrust laws. Because of the deterrent
effect of antitrust enforcement, the observed practices would be expected disproportionately to benefit competition even if they have anticompetitive potential in other settings.252 In consequence, empirical studies evaluating
exclusionary conduct provide little evidence of value regarding either the potential for those practices to harm competition253 or the likelihood that the
particular instances selected for enforcement in fact harm competition.254
The other commonly offered justification for the view that errors are more
costly when exclusion is alleged than when collusion is alleged turns on a
claim about the institutional competence of enforcers and courts. For institutional competence to matter, enforcers and courts must make systematically
voked to justify restrictions imposed by manufacturers on distributors, where the manufacturer
claims that absent the restrictions, the dealer would not provide an appropriate level of services
to customers or promotional investments. See generally Benjamin Klein & Andres V. Lerner,
The Expanded Economics of Free-Riding: How Exclusive Dealing Prevents Free-Riding and
Creates Undivided Loyalty, 74 ANTITRUST L.J. 473 (2007); Benjamin Klein & Kevin M. Murphy, Vertical Restraints as Contract Enforcement Mechanisms, 31 J.L. & ECON. 265 (1988);
Lester G. Telser, Why Should Manufacturers Want Fair Trade? 3 J.L. & ECON. 86 (1960). For
other examples of business justification defenses considered in antitrust cases, see HOVENKAMP,
supra note 36, § 5.2 (horizontal joint ventures); Mary Anne Mason & Janet L. McDavid, Business Justification Defenses, in 2 ISSUES IN COMPETITION LAW AND POLICY supra note 52, at
1019 (monopolization cases); Michael A. Salinger, Business Justification Defenses in Tying
Cases, in 3 ISSUES IN COMPETITION LAW AND POLICY supra, at 1911 (tying cases); Joseph Kattan, Efficiencies and Merger Analysis, 62 ANTITRUST L.J. 513 (1994) (horizontal mergers).
252 See Wickelgren, supra note 77, at 55 (“[H]ow often one should expect to see an anticompetitive manifestation of a restraint will depend on how that restraint is likely to be judged.”); id. at
56 (“When considering whether to change the treatment of RPM, for example, from the per se
rule to the rule of reason, it is not important what fraction of existing uses of RPM are pro- or
anticompetitive. Rather, what matters is how many more pro- and anticompetitive instances of
RPM will arise under some version of rule-of-reason treatment rather than per se treatment.”).
Relatedly, the leading studies of vertical restraints may have examined competitive effects primarily in relatively competitive markets, where those practices would not be expected to harm
competition, rather than in sectors in which firms exercise substantial market power, where antitrust enforcement tends to be concentrated. Vincent Verouden, Vertical Agreements: Motivation
and Impact, in 2 ISSUES IN COMPETITION LAW AND POLICY, supra note 52, at 1813, 1837. Although defendants commonly prevail in vertical restraint cases, those outcomes frequently result
from lack of proof of market power so they provide little guide to the likelihood that such conduct, whether exclusionary or collusive, would be justified when defendants have market power.
Furthermore, the prevalence of a practice in markets thought to perform competitively at best
establishes that the practice could be procompetitive. It does not indicate whether the conduct
could harm competition when employed by firms with market power or whether anticompetitive
uses have been deterred by the threat of antitrust enforcement. See Randal D. Heeb et al., supra
note 153, at 229 (loyalty rebates, which in theory can under some circumstances benefit competition and under other circumstances harm competition, are sometimes used by cartels).
253 Empirical economic studies about the competitive effects of specific business practices are
generally more useful for evaluating conduct in industries similar to those studied than for generalizing across industries to formulate legal rules. Jonathan B. Baker & Timothy F. Bresnahan,
Economic Evidence in Antitrust: Defining Markets and Measuring Market Power, in HANDBOOK
OF ANTITRUST ECONOMICS 1, 24–29 (Paolo Buccirossi ed., 2008).
254 By contrast, the many examples of anticompetitive conduct observed during periods of lax
antitrust enforcement suggest the benefits of antitrust. See Baker, supra note 228, at 36–38.
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different (and worse) errors when evaluating exclusion cases than when analyzing collusion cases. Because the main concern of those arguing in favor of
downplaying exclusion is that false positives will chill procompetitive conduct, the issue turns on the relative incidence and significance of judicial errors when the conduct under review has a plausible efficiency justification. In
the exclusion context, this includes price cutting and new product introductions—conduct that at least in the short run benefits consumers.255 There is no
reason to think that enforcers and courts will systematically fail to notice
when defendants have a plausible efficiency justification in exclusion cases
yet recognize that possibility in collusion cases.256 If outcomes are systematically biased in favor of plaintiffs in exclusion cases but not in collusion cases,
that outcome would instead have to result from some aspect of the decisionmaking process that differs across the two settings.
The most common institutional competence argument presumes that exclusion cases are disproportionately prompted by the trumped up complaints of
inefficient rivals, losers in the marketplace, that seek to overturn the market’s
verdict in the courts directly as plaintiffs or indirectly by inducing enforcement agency suits. If so, and if, in addition, complaining rivals bringing bad
cases tend to have more influence over the judicial process than the firms
wrongly accused of anticompetitive exclusionary conduct, then false positives
would be more likely to arise in exclusion cases than in collusion cases.257
255 Similarly, collusive conduct can appear to benefit consumers in the short run. Examples
may include various practices facilitating coordination, such as the parallel adoption of simplified and common product definitions, the parallel adoption of price lists, or the parallel adoption
of guarantees to buyers that they will get the best price the seller gives any buyer.
256 To similar effect, some claim that antitrust enforcement against exclusion is problematic
because it is difficult for courts to make the detailed factual assessments required to determine
whether firms can solve their exclusion problems or to compare the harms from exclusionary
conduct against the procompetitive benefits. See, e.g., Manne & Wright, supra note 248, at 157
(characterizing Easterbrook’s analysis as premised in part on the view that “errors of both types
are inevitable, because distinguishing procompetitive conduct from anticompetitive conduct is an
inherently difficult task in the single firm context”). Yet if fact finding is the problem with
comprehensive reasonableness review of exclusion allegations, it raises a comparable difficulty
for collusion enforcement under the comprehensive rule of reason, where a court must determine
whether firms can solve their collusion problems and analyze whether the benefits to competition
dissipate or eliminate the harms. See Leegin Creative Leather Prods., Inc. v. PSKS, Inc., 551
U.S. 877, 916–17 (2007) (Breyer, J., dissenting) (noting the difficulties of assessing whether the
benefits of resale price maintenance in preventing free riding outweigh the potential harm of
facilitating a dealer cartel, and the difficulties judges and juries may face in evaluating market
power).
257 See, e.g., WILLIAM J. BAUMOL, ROBERT E. LITAN & CARL J. SCHRAMM, GOOD CAPITALISM,
BAD CAPITALISM, AND THE ECONOMICS OF GROWTH AND PROSPERITY 118–19 (2007); Edward A.
Snyder & Thomas E. Kauper, Misuse of the Antitrust Laws: The Competitor Plaintiff, 90 MICH.
L. REV. 551 (1991) (noting that a small minority of the 37 horizontal restraints cases filed by
competitor plaintiffs between 1973 and 1983 in five federal districts alleging exclusionary practices seemed meritorious). If the courts do not weed out false claims from competitors, moreover,
even efficient rivals would be expected to bring unwarranted exclusion claims in order to discourage hard competition from dominant firms.
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Under such circumstances, antitrust institutions would inappropriately tend to
protect competitors rather than competition in exclusion cases, but not so
often in collusion cases, consistent with what those making this institutional
competence argument contend.258
This argument about institutional competence is unconvincing, however,
because there is no reason to think that the agencies and courts are biased in
favor of the victims of alleged exclusion259 or that unsuccessful rivals can
systematically convince the enforcement agencies and courts to accept bad
cases.260 Even if unsuccessful rivals or terminated dealers foresee the possibility of substantial gains from bringing a speculative (or even trumped up) antitrust complaint, they must also consider their low probability of success in
evaluating their expected gain, and thus in deciding whether to bring a case.
After all, it is no more difficult for enforcers and courts to understand the
possible biases of rivals, and discount their testimony appropriately, than for
those decision makers to discount as necessary the testimony of alleged excluding firms and customers.261 More than most firms, moreover, defendants
in exclusion cases, particularly large firms accused of monopolization, tend to
have the ability to present an effective courtroom case, employing top quality
legal representation and economic experts and supporting them with a generous budget.262 Large firm defendants in exclusion cases also tend to have the
resources to make an effective public relations case and mobilize political
support.263
258 See Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc., 429 U.S. 477, 488 (1977) (quoting
Brown Shoe Co. v. United States, 370 U.S. 294, 320 (1962) (noting that antitrust aims to protect
“competition, not competitors”)).
259 One commentator speculates, without evidence, that antitrust enforcers tend to sympathize
with smaller firms. D. Daniel Sokol, The Strategic Use of Public and Private Litigation in Antitrust as Business Strategy, 85 S. CAL. L. REV. 689, 730–31 (2012). It is also possible that juries
could systematically misinterpret colorful evidence of defendant intent to crush rivals as indicating an aim to do so through anticompetitive means (rather than by lowering costs and prices or
introducing new or better products), notwithstanding jury instructions making the relevant distinction. The likelihood and magnitude of the possible prejudicial effect of such evidence on the
interpretation of aggressively competitive conduct close to the line is hard to assess, but if this
possibility is important systematically, it is better addressed through rulings on the admissibility
of evidence in those cases where the problem may arise rather than through caution in enforcing
the antitrust laws against anticompetitive exclusion generally.
260 In addition, the antitrust injury requirement limits the possible misuse of the antitrust laws
in this way.
261 See FCC, STAFF ANALYSIS AND FINDINGS, WT Docket No. 11-65, 44–45 & n.255 (Nov. 29,
2011), available at http://hraunfoss.fcc.gov/edocs_public/attachmatch/DA-11-1955A2.pdf
(describing interests of merging firms and merger opponents and their possible alignment with
the public interest).
262 But see Sokol, supra note 259, at 731 (arguing that dominant firms do not employ effective
counterstrategies because they are prone to inertia, focused on running their business, arrogant,
and likely to be viewed as unsympathetic victims).
263 Another institutional competence argument concerns remedy. Exclusionary violations are
sometimes said to be difficult to remedy in rapidly changing industries, where dramatic changes
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C. OTHER ERROR COST ARGUMENTS
Other error cost arguments for giving priority to collusion over exclusion
are also unconvincing. Some suggest, consistent with Justice Scalia’s Trinko
dicta,264 that false negatives are limited in antitrust cases because markets are
almost invariably self-correcting265 or that false positives are particularly expensive to society because market power rather than competition forms the
primary spur to innovation.266 Those controversial claims should not be accepted.267 Market power is often durable: economic theory suggests many reasons why monopoly power would not be transitory,268 and the case law offers
many examples of durable market power,269 including in high-tech markets.270
Moreover, the empirical evidence indicates that the push of competition is
generally more important for innovation than the pull of monopoly.271 Hence a
focus on “dynamic competition” does not justify exclusionary conduct like
monopolization.272 For the present discussion, however, the more important
in the marketplace are likely to occur between the date of violation and the time a court determines liability and crafts relief. Even when remedies that would restore competition in the market under review appear limited, however, remedies providing general deterrence (such as fines
and damages) remain available. See United States v. Microsoft Corp., 253 F.3d 34, 49 (D.C. Cir.
2001); Louis Kaplow, An Economic Approach to Price Fixing, 77 ANTITRUST L.J. 343, 416–32
(2011) (preferring fines to injunctions as the sanction for collusion on general deterrence
grounds).
264 See supra notes 12–20 and accompanying text.
265 See, e.g., Fred S. McChesney, Easterbrook on Errors, 6 J. COMPETITION L. & ECON. 11, 16
(2010); Fred S. McChesney, Talking ‘Bout My Antitrust Generation: Competition for and in the
Field of Competition Law, 52 EMORY L.J. 1401, 1412 (2003); see also Hylton, supra note 225, at
102; Manne & Wright, supra note 248, at 157 (claiming that Easterbrook’s analysis is premised
in part on the view that “false positives are more costly than false negatives, because self-correction mechanisms mitigate the latter but not the former”).
266 See Evans & Hylton, supra note 166, at 203.
267 For a discussion of other arguments potentially related to the balance of error costs in the
context of monopolization enforcement, see Baker, supra note 21, at 616–20.
268 See, e.g., Ariel Ezrachi & David Gilo, Are Excessive Prices Really Self-Correcting? 5 J.
COMPETITION L. & ECON. 249 (2008) (noting that supracompetitive prices only attract entry
efforts if they signal that the post-entry price would be high or that the incumbent firms have
high costs, and even then entry may not succeed in competing those prices down to competitive
levels); see also Oliver E. Williamson, Delimiting Antitrust, 76 GEO. L.J. 271, 289 (1987)
(“Economies as an antitrust defense excepted, no one has provided a demonstration that the cost
differences are as Easterbrook indicates. Easterbrook has an undischarged burden of proof that
the cost of false positives in the market power region where strategic behavior is implicated is
similarly low.”).
269 See, e.g., Standard Oil Co. v. United States, 221 U.S. 1 (1911); United States v. Dentsply
Int’l, Inc., 399 F.3d 181 (3d Cir. 2005).
270 See, e.g., United States v. Microsoft Corp., 253 F.3d 34 (D.C. Cir. 2001).
271 See generally Baker, supra note 141; Shapiro, supra note 141.
272 Baker, supra note 166; cf. Catalano, Inc. v. Target Sales, Inc., 446 U.S. 643, 649 (1980)
(rejecting the argument that the potential for supracompetitive prices to induce entry could justify
horizontal price fixing). Moreover, the suggestion that an increased financial reward to defendants promotes competition by increasing their incentive to invest and innovate, if offered without
qualification or recognition of tradeoffs, has no logical stopping point. It would imply that the
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point is that even if these suspect claims were accepted, they would not justify
the rhetorical consensus prioritizing collusion: they would be reasons to oppose all antitrust enforcement, not to downgrade exclusion relative to
collusion.
Another error cost argument has been accepted by some U.S. courts as a
reason to allow a monopolist to make exclusive vertical agreements: the claim
that exclusionary practices cannot make matters worse (and thus cannot harm
competition) because there is a “single monopoly profit.”273 This possibility
does not justify treating exclusion less seriously than collusion, however, because the argument applies only in narrow circumstances.274 If the excluding
firms have literally no fringe rivals and face no potential entrants, and if there
are no ways that buyers can substitute away from the monopoly, then
there may indeed be no way to increase the rents from exercising market
power through (further) exclusionary conduct. Outside of such unusual facts,
though, firms can potentially obtain, extend, or maintain their market power
through exclusionary conduct that suppresses these forms of competition,275
government should subsidize firms heavily, allowing them to invest even more for the benefit of
society. See Hylton & Lin, supra note 167, at 258–59 (noting that exclusionary practices can
encourage investment by making it more profitable).
273 E & L Consulting, Ltd. v. Doman Indus. Ltd., 472 F.3d 23 (2d Cir. 2006); G.K.A. Beverage
Corp. v. Honickman, 55 F.3d 762, 767 (2d Cir. 1995); Town of Concord v. Boston Edison Co.,
915 F.2d 17, 23, 32 (1st Cir. 1990) (Breyer, C.J.); see Jefferson Parish Hosp. Dist. No. 2 v. Hyde,
466 U.S. 2, 36–37 (1984) (O’Connor, J., concurring).
274 Similarly, a horizontal agreement with no efficiency justification would not harm competition if the horizontal rivals are already coordinating perfectly. But this unlikely possibility does
not justify downplaying the concern with collusive conduct.
275 See generally ANTITRUST LAW IN PERSPECTIVE, supra note 25, at 417–18 (example in
which a monopolist manufacturer harms competition by consolidating distribution in one dealer);
id. at 861–65 (example in which single monopoly profit theory holds when downstream buyer
uses monopolized product in fixed proportions with other inputs but fails to hold when the product is used in flexible proportions); id. at 811–12 (example in which a monopolist achieves
additional market power through the exclusionary effect of tying); see also Timothy F. Bresnahan, Monopolization and the Fading Dominant Firm, in COMPETITION LAW AND ECONOMICS:
ADVANCES IN COMPETITION POLICY ENFORCEMENT IN THE EU AND NORTH AMERICA 264 (Abel
M. Mateus & Teresa Moreira eds., 2010) (demonstrating that a dominant firm threatened by rival
innovation can profit by blocking those rivals, leading to the failure of the single monopoly profit
theory in the case of technologically dynamic industries). An incumbent monopolist would also
be unable to increase its market power through exclusion in an unusual case in which it has
sufficient bargaining power to permit efficient entry while appropriating virtually all the rents.
See Phillipe Aghion & Patrick Bolton, Contracts as a Barrier to Entry, 77 AM. ECON. REV. 388
(1987) (discussing a model in which the manufacturer and distributor seek to allow efficient
entry and extract all the rents the entrant creates, but bargaining over splitting the surplus can
break down when the parties have imperfect information). The economics literature has also
considered the applicability of the “single monopoly profit” argument in the context of “monopoly leveraging” concerns outside the scope of the present discussion. See generally Patrick Rey
& Jean Tirole, A Primer on Foreclosure, in 3 HANDBOOK OF INDUSTRIAL ORGANIZATION 2145,
2182–83 (Mark Armstrong & Robert Porter eds., 2007) (discussing models of “horizontal foreclosure”); Salop & Romaine, supra note 218, at 623–26 (distinguishing between application of
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even if the excluded firms are less efficient competitors than the excluding
firms.276
In sum, the policy (or error cost) arguments for downplaying exclusion do
not stand up to analysis, whether they are grounded in common ideas about
the difficulty of distinguishing procompetitive conduct from anticompetitive
exclusion or in the more controversial arguments made in Trinko. The close
relationship between the ways by which exclusion and collusion allow firms
to exercise market power, and the convergence in the legal rules governing
exclusionary and collusive conduct, do not mislead. Exclusion should be
treated as seriously as collusion.
VI. IMPLICATIONS FOR ENFORCEMENT
Exclusion should be recognized as a core concern of competition law and
policy along with collusion, and the use of the common rhetorical convention
that treats anticompetitive exclusionary conduct as of lesser importance than
anticompetitive collusion should be avoided. Doing so could lead enforcers to
place a higher priority on challenging exclusion than they do today, particularly aiming to prevent exclusionary conduct that forecloses potential entry in
markets subject to rapid technological change. It is particularly important to
reaffirm the innovation benefits of antitrust enforcement against anticompetitive exclusion in high-tech markets in the wake of the Trinko opinion’s nod
toward monopoly power as a means of encouraging innovation,277 which risks
leading lower courts astray.278
Recognizing exclusion as a core competition problem is unlikely to lead
courts to modify the substantive antitrust rules they employ to test exclusionary conduct. Those rules are, in general, well-designed to test the reasonableness of firm conduct, whether the analysis is truncated or comprehensive. Nor
is rhetorical parity likely to affect the frequency with which the courts address
exclusionary conduct. Because the rules would not change, it is unlikely that
private plaintiffs, which account for the bulk of antitrust litigation, would
bring more exclusion cases (other than follow-ons in the event government
actions against exclusionary conduct increase).279 Government enforcers
the “single monopoly profit” argument to monopoly leveraging allegations and preserving monopoly allegations).
276 See supra note 189.
277 See supra note 16 and accompanying text.
278 See supra notes 167–172 and accompanying text.
279 Neither the relative frequency of the underlying anticompetitive conduct nor the tools available to enforcers and plaintiffs for identifying them would directly be affected if exclusion is no
longer described as a lesser antitrust offense. The number of exclusion cases could even decline.
To the extent firms today have been misled by the common rhetoric, and incorrectly believe that
anticompetitive exclusionary conduct would not successfully be challenged, a rhetorical change
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should treat exclusionary conduct as comparable in priority with collusive
conduct, although, as a practical matter, the relative frequency of government
cases alleging anticompetitive exclusion would increase only to the extent the
enforcement agencies shift resources away from investigating and challenging
anticompetitive collusion.280 Even if the agencies targeted exclusionary conduct aggressively, budgetary and staffing limitations would most likely permit
the agencies to bring only a handful of additional exclusion cases annually.281
The major benefit of recognizing that exclusion is as important as collusion
would instead come from protecting the legitimacy of the antitrust rules governing exclusionary conduct against pressure for modifications that would
limit enforcement inappropriately. Enforcers and courts would not be misled
by the contemporary consensus in antitrust discourse that shies away from
attacking anticompetitive exclusion, instead urging a focus on collusive conduct. A rhetorical shift may also heighten the salience of addressing the open
questions in the formulation of the rules governing truncated condemnation of
anticompetitive exclusion,282 and thereby encourage the further development
of the law in that area.
A shift in how exclusion is viewed could also matter for remedies, as it may
encourage the Justice Department to raise the penalties for anticompetitive
exclusionary conduct, in appropriate cases, through criminal enforcement.283
The Justice Department has the discretion to challenge anticompetitive exclusionary conduct as a civil violation or to prosecute it criminally, in the same
way that the government has the discretion to attack collusion civilly or crimi-
of course could increase deterrence, reduce the prevalence of such conduct, and, in consequence,
reduce the frequency with which it is challenged.
280 The frequency of government enforcement in various categories is surveyed in Kovacic,
supra note 30, at 407–76.
281 In recent years, the Justice Department has brought between two and five non-merger civil
actions annually and challenged twelve to twenty mergers during each of the least five years
(fiscal years 2007–2011), ANTITRUST DIV., U.S. DEP’T OF JUSTICE, WORKLOAD STATISTICS FY
2002–2011, http://www.justice.gov/atr/public/workload-statistics.html, and so has limited ability
to increase the number of exclusion cases through reallocation of civil resources. The Antitrust
Division also filed between forty and ninety criminal cases annually during these years. Because
criminal exclusionary conduct cases are likely to be rare even if exclusion is viewed as having
equal priority as collusion, the Justice Department is unlikely to be able to increase its exclusionary conduct case count substantially without shifting resources from criminal to civil investigations. The Federal Trade Commission would similarly have only limited ability to increase the
number of exclusion cases through reallocation of resources.
282 See generally supra notes 117–138 and accompanying text.
283 The penalties could also be raised by awarding the government the ability to collect civil
fines for antitrust violations. See First, supra note 80, at 153–65 (recommending that Congress
enlarge government antitrust remedies to include civil penalties, and that the enforcement agencies initially target the use of those remedies to monopolization cases in which the exclusionary
conduct had no efficiency justification or in which the defendant engaged in a systemic effort to
maintain monopoly).
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nally.284 Criminal enforcement has been employed to attack exclusion in the
past, as with a monopolization case brought against a dominant newspaper
and its senior officials alleging exclusionary conduct similar to the anticompetitive practices attacked in Lorain Journal.285 Today, however, criminal antitrust enforcement is directed at cartel conduct,286 consistent with the common
description of exclusion as a lesser offense.
If exclusion is viewed as central to antitrust, criminal prosecution would no
longer be reserved for collusive conduct. When applied to exclusionary conduct, it would almost surely be directed at the most egregious cases of plain
exclusion, in much the way that the government now targets only the most
egregious naked cartels for indictment.287 It would be easy to imagine a criminal antitrust indictment (as well as other criminal charges) brought against
senior executives if, for example, a dominant firm harmed competition by
284 The Justice Department challenged the lysine cartel criminally, for example, but brought a
civil case when challenging price fixing among the major airlines. Compare United States v.
Andreas, 216 F.3d 645, 680 (7th Cir. 2000) (upholding criminal convictions of executives conspiring to fix lysine prices), with United States v. Airline Tariff Publ’g Co., No. 92–2854 (SSH),
1994 WL 502091 (D.D.C. Aug. 10, 1994) (final consent decree settling airline price-fixing
allegations).
285 Kansas City Star v. United States, 240 F.2d 643 (1957); see also United States v. Hilton
Hotels Corp., 467 F.2d 1000 (9th Cir. 1972) (upholding criminal conviction of firms that conspiring to boycott suppliers, though the group boycott was collusive rather than exclusionary);
William E. Kovacic, The Intellectual DNA of Modern U.S. Competition Law for Dominant Firm
Conduct: The Chicago/Harvard Double Helix, 2007 COLUM. BUS. L. REV. 1, 17–18 & n.44
(identifying three criminal monopolization cases brought during the early 1960s). Only a small
fraction of antitrust cases prosecuted criminally have involved exclusionary practices. See Joseph
C. Gallo et al., Criminal Penalties Under the Sherman Act: A Study of Law and Economics, 16
RES. IN L. & ECON. 25, 28 (Richard O. Zerbe, Jr. ed., 1994) (finding that 33, or 2 percent, of the
1,522 criminal antitrust cases brought by the Justice Department between 1955 and 1993 involved exclusionary practices).
286 “In general, current [Antitrust] Division policy is to proceed by criminal investigation and
prosecution in cases involving horizontal, per se unlawful agreements such as price fixing, bid
rigging, and customer and territorial allocations. . . . [C]ivil prosecution is used with respect to
other suspected antitrust violations . . . .” U.S. DEP’T. OF JUSTICE, ANTITRUST DIVISION MANUAL
III-12 (5th ed. Nov. 2010), available at http://www.justice.gov/atr/public/divisionmanual/
atrdivman.pdf.; accord, Thomas O. Barnett, Assistant Att’y Gen., Antitrust Div., U.S. Dep’t of
Justice, Criminal Enforcement of Antitrust Laws: The U.S. Model (Sept. 14, 2006), available at
http://www.justice.gov/atr/public/speeches/218336.htm (“[T]he Division focuses its criminal enforcement . . . . narrowly on price fixing, bid-rigging, and market allocations, as opposed to the
‘rule of reason’ or monopolization analyses used in civil antitrust law.”). In the past, however,
the Antitrust Division has indicated that criminal enforcement is appropriate when predatory
(exclusionary) conduct supports collusion. See REPORT OF THE ATTORNEY GENERAL’S NATIONAL
COMMITTEE TO STUDY THE ANTITRUST LAWS 350 (1955) (statement of Assistant Attorney
General).
287 See Kovacic, supra note 30, at 416–23 (describing the progressive evolution of the U.S.
norm treating cartel behavior as criminal conduct since the 1970s, and providing statistics concerning the relative frequency of criminal (DOJ) and civil (FTC) enforcement against anticompetitive horizontal agreements). See generally Donald I. Baker, To Indict or Not to Indict:
Prosecutorial Discretion in Sherman Act Enforcement, 63 CORNELL L. REV. 405 (1978).
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destroying its key rival’s factory,288 or if a price-fixing cartel engaged in cooperative conduct to exclude an actual or potential rival that threatened to
destabilize its collusive arrangement.289 Criminal enforcement in exclusion
cases would be rare—cartel cases would surely remain the mainstay of the
Justice Department’s criminal enforcement efforts—but that is not a reason to
avoid criminal sanctions in appropriate exclusionary conduct cases.
VII. CONCLUSION
Enforcers and commentators routinely describe anticompetitive exclusion
as a lesser offense than anticompetitive collusion. The absence of rhetorical
parity misleads because the two types of conduct harm competition in similar
ways and are treated comparably in the framing of antitrust rules. Nor do
policy considerations, whether or not discussed in “error cost” terms, suggest
downplaying exclusion relative to collusion in antitrust enforcement.
The rhetorical relegation of anticompetitive exclusion to antitrust’s periphery must end. The more that exclusion is described as a lesser offense, the
more its legitimacy as a subject for antitrust enforcement will be undermined
and the greater the likelihood that antitrust rules will eventually change to
limit enforcement against anticompetitive foreclosure when they should not. It
is time to recognize that exclusion, like collusion, is at the core of sound
competition policy.
288 See supra note 55 (providing examples of egregious exclusionary conduct, including destruction of a rival’s in-store displays, espionage and sabotage, false statements disparaging a
rival’s product, and destruction of a rival’s retail store); see also United States v. Empire Gas
Corp., 537 F.2d 296, 298 & n.1 (8th Cir. 1976) (involving a corporate president acquitted in
criminal case alleging destruction of property; the Justice Department also brought an unsuccessful attempt to monopolize case against the firm).
289 The moral condemnation and loss of liberty associated with criminal sanctions would thus
be limited to the perpetrators of serious anticompetitive conduct that firms and their managers
should have understood in advance would be subject to criminal prosecution.